By Megan Cassella Updated Feb. 4, 2022 10:04 am ET / Original Feb. 4, 2022 2:45 am ET
The U.S. economy created 467,000 jobs last month, the Labor Department reported on Friday, beating economists’ expectations and suggesting the Omicron coronavirus variant may have caused less damage to the labor market than anticipated.
The new data underscore how each successive wave of the coronavirus has had an increasingly milder effect on the economy, as many American consumers learn to live with the virus. It suggests the U.S. labor market is stronger than previously thought—economists had been expecting a gain of only 150,000 in January—and will bolster the Federal Reserve’s hawkish pivot, as the central bank gears up to raise interest rates likely next month.
Job growth estimates for November and December were revised significantly upward in the Friday report, showing the creation of an additional 709,000 more jobs than what was previously reported. The unemployment rate rose slightly to 4.0% from 3.9% as the labor-force participation rate ticked upward as well, to 62.2% from 61.9%.
Job gains took place in a number of industries. The leisure and hospitality sector—where employment remains down more than 10% from prepandemic levels—gained 151,000 jobs last month, the bulk of them in restaurants and bars. Professional and business services accounted for 86,000 jobs, while retail added 61,000.
Average hourly earnings for all employees also rose to $31.63, marking a 23-cent increase over the month and a 5.7% gain over the year.
The positive report came as somewhat of a surprise to the upside, given that economists had expected the U.S. economy gained just 150,000 jobs in January. The ADP National Employment report, which surveys a sizable sample of the U.S. labor market and is seen as a rough preview of the government’s jobs data each month, had also shown this week that U.S. companies cut 301,000 jobs in January.
And the White House had sought to front-run the report by emphasizing that the survey was taken as Omicron cases were hitting their peak in the U.S. and would fail to capture the true strength of the labor market.
Still, despite the positive headline number, evidence of the damage caused by the Omicron wave remained apparent throughout the report. Six million Americans reported they had been unable to work in January—meaning they either did not work at all or worked fewer hours at some point in the month preceding the survey—because their employer closed or lost business due to the pandemic. That’s nearly double the 3.1 million who said the same in December.
An additional 1.8 million said they were prevented from looking for work in January due to the pandemic, up from 1.1 million the month before.
But it’s the combination of rising wages and higher labor-force participation in particular that will keep the Fed on track to raise interest rates in March. And it’s fueling some concerns that the central bank could take additional measures, including a larger-than-expected 0.5% move next month or an additional rate hike during the year.
Nearly 1.4 million people rejoined the labor force last month, bolstering the view that the labor market is at or near full employment. And in the past three months, wages have risen 7.7% compared to the three months previous, according to Ian Shepherdson, chief economist with Pantheon Macroeconomics.
“No matter how bullish you are about productivity growth, the Fed can’t live with that pace,” Shepherdson wrote in a research note.
The risk too is that the jump in earnings provides further evidence that the central bank is “behind the inflation curve,” Seema Shah, chief strategist with Principal Global Investors , said on Friday. “The case for near-term tightening has just been further reinforced.”
Dismissing concerns over whether the U.S. is headed for a recession, she added: “The economy is still hot and is strong enough to digest the policy tightening this year. Enough with the R-word whispers.”