Employment surges in January

February 2, 2024

Payroll employment surged by 353,000 in January, after an upwardly revised 333,000 jobs in December. When taken with the upward revisions to the previous two months and the hotter than expected wage growth, that suggests the labor market may be reaccelerating. Public sector payrolls added 36,000, mostly in state and local governments as they continued to staff up. State and local government hiring did not hit the peak of February 2020 until late 2023, a full year and a half behind the overall economy.

Private sector payrolls rose by 317,000, the strongest since a year ago January. The first month of the year is when we typically see the largest number of layoffs. We shed an average of 2.87 million workers every January of the 2000s. This year only 2.6 million jobs were shed, which means that more than 300,000 workers were able to keep their jobs and paychecks. That is also known as labor hoarding, which was the case in 2023 as well. Firms that fought hard to hire up were more likely to cut hours worked and temporary hires than to do mass layoffs.

Private sector gains were driven by the services sector, which added 289,000 jobs or more than 80% of job gains for the month. Heath care and social assistance accounted for more than 100,000, or more than a third of the service sector job gains alone. Professional and business services added 74,000, mostly permanent hires. The numbers of temporary help moved up only modestly. Trade, transportation and utilities and retail together added 89,000. The latter two sectors did not hire up as much as usual during the holiday season, which meant fewer post-holiday firings.

Leisure and hospitality added only 11,000, one of the two weakest months for the sector since the economy initially reopened in early 2021. The gains were concentrated in arts, entertainment and recreation; most of those gains were concentrated in amusement, gambling and recreation. The leisure and hospitality sector were the hardest hit in terms of work due to unusually harsh winter weather across the country during the week the survey was taken.

Manufacturing added 23,000 jobs, mostly in non-durable goods, including chemicals. Motor vehicle and parts accounted for only 3,000 of those gains, as dealer lots filled during the month. The overall supply on dealers’ lots jumped above 70 days' worth in December and January, well above the pre-pandemic norm of 60 days’. That is a big shift from early in the pandemic when dealer lots were all but empty.

Average hourly earnings surged 0.6% in January, buoyed by a jump in the minimum wage for 22 states in January at an average of $0.45 per hour. Those gains, and the unusual bounce we saw due to the ratification of UAW contracts in December, pushed average hourly earnings up at a 4.5% pace from a year ago. That marks a sharp acceleration in average hourly earnings from the upwardly revised 4.3% pace in the fourth quarter; it's the wrong direction for the Federal Reserve, which is looking for a cooling of wages to bring down service sector inflation. Professional and business services, which had seen a significant cooling in 2023, posted some of the strongest monthly gains in January; average hourly earnings were up 0.7% in January, nearly double the pace of December.

Hours worked fell to 31.1 in January from 34.3 in December, the lowest level outside of the pandemic since 2010. That reflected unusually harsh winter weather and efforts by firms to hold costs in check without laying off workers, another sign of labor hoarding.

Separately, the unemployment rate remained unchanged at 3.7% in January. That is the third month in a row that the unemployment rate has held at that level. Participation in the labor force remained subdued at a 62.5% rate in January, with an increase in participation by prime-women (ages 25-54) offsetting a drop in men over the age of 55 leaving the labor force.

Multiple job holders fell slightly, which is now a sign of better economic conditions as opposed to worse. Multiple job holders have been rising as the unemployment rate fell, since the recovery from the 2001 recession. Those working part-time for economic reasons, which reflects some stress in the labor market, rose 211,000 to 4.42 million in January. Harsh winter weather likely exacerbated the loss in hours as those who were out of work due to unusually bad winter weather jumped to the highest level for the month since January 2011. The survey for the employment report was taken during the week we saw the worst of the winter storms.

The number of those out due to parental leave in January was the second highest for the month on record. The all-time peak for those out due to parental leave hit an all-time peak in October 2023. That is largely because of an expansion in parental leave during the pandemic, as opposed to a baby boomlet. Births have actually fallen significantly after spiking in 2021.