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January jobs report: US economy adds 353,000 jobs, blowing past Wall Street expectations

The labor market started 2024 on a high note.

The US economy created 353,000 nonfarm payroll jobs in January, according to new data from the Bureau of Labor Statistics released Friday, more than the 185,000 expected by economists.

January's job gains were also higher than December's revised figures, which showed there were 333,000 jobs created last month. Initial data out last month showed there were 216,0000 additions to the workforce in the final month of 2023. Combined, revisions for November and December added a total of 126,000 additional jobs compared to initial reports.

The unemployment rate also held steady in January at 3.7% for the third straight month.

The surprise strength in the labor market helped consumer wallets too.

Wages, a closely watched indicator of inflation and a gauge of how much leverage workers have in the labor market, increased 0.6% on a monthly basis and 4.5% over last year; economists had expected wages to rise 0.3% over last month and 4.1% over last year.

Some key metrics did decline, though. The labor force participation rate ticked lower to 62.5%, down from 62.6% the month prior, while average weekly hours worked moved down slightly from 34.3 to 34.1.

The largest jobs increases in Friday's report were seen in professional and business services, which added 74,000 jobs in February, well above its 2023 monthly average of 14,000 jobs. Meanwhile, healthcare added 70,000 jobs, and retail trade gained 45,000 jobs.

"In the details, the employment gains were more widespread than in prior months – widening out beyond the more concentrated increases in acyclical sectors of government, healthcare, and education," Nationwide Chief Economist Kathy Bostjancic wrote in a note to clients.

On Wednesday, Federal Reserve Chair Jerome Powell described the labor market as "at or nearing normal but not totally back to normal."

"It’s still a good labor market for wages and for finding a job," Powell added. "But it’s getting back into balance. And that’s what we want to see."

Other recent data has reflected Powell's observation of a normalizing labor market. ADP's monthly private payroll data released Wednesday showed the difference between annual wage growth for workers changing jobs and workers staying in jobs has narrowed to pre-pandemic levels.

"You're seeing solid pay growth, not supercharged pay growth like we saw before," ADP chief economist Nela Richardson said on a call with reporters after the release on Wednesday.

The labor market has come into focus in the first month of the year as headlines of layoffs from many corporations have piled in. Broadly, economists haven't seen this trend appear in the data yet and didn't expect it to play a prominent role in Friday's report.

Notably, Chair Powell reiterated that the Fed doesn't believe it still needs to see significant softening in the labor market in order to start cutting rates.

"At this point we want to see strong growth," Powell said. "We want to see a strong labor market. We’re not looking for a weaker labor market. We’re looking for inflation to continue to come down, as it has been coming down for the last six months."

Still, investors appear worried that a hot January jobs print will keep the Federal Reserve from cutting interest rates.

Investors are now placing a less than 20% chance on a interest rate cut at the March meeting. On Thursday, there had been a nearly 40% chance and a month ago nearly an 80% chance.

"After the FOMC meeting on Wednesday, we maintained confidence in our expectation of a March rate cut," Jefferies US economist Thomas Simons wrote in a note to clients on Friday. "After today's data, however, it is hard to see how that is going to happen. Barring a significant turnaround in the February data, or very weak inflation data between now and mid-March, it is much more likely that the FOMC will hold policy rates steady in March."

Tennis - Australian Open - Melbourne Park, Melbourne, Australia - January 18, 2023 A fan displays a United states flag during Mackenzie Mcdonald's second round match against Spain's Rafael Nadal REUTERS/Loren Elliott
Tennis - Australian Open - Melbourne Park, Melbourne, Australia - January 18, 2023 A fan displays a United states flag during Mackenzie Mcdonald's second round match against Spain's Rafael Nadal REUTERS/Loren Elliott (REUTERS / Reuters)

Josh Schafer is a reporter for Yahoo Finance. Follow him on X @_joshschafer.

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