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US Labor Market Defies Omicron Push; economy on solid footing ahead of rate hikes

  • Non-farm payrolls increase by 467,000 in January
  • Job gains spread across all industries
  • The economy added 709,000 jobs in December and November
  • Unemployment rate at 4.0%; participation rate at 62.2%
  • The average hourly wage increases by 0.7%; up 5.7% year-on-year

WASHINGTON, Feb 4 (Reuters) – The U.S. economy added far more jobs than expected in January despite disruption to consumer-facing businesses due to a rise in COVID-19 cases, indicating underlying strength which should support the Federal Reserve’s start-up expansion to raise interest rates.

The Labor Department’s closely watched jobs report on Friday also showed that 709,000 more jobs were added in November and December than earlier estimates. Wage gains accelerated last month and the labor pool has widened.

The upbeat report ended days of anxiety among economists and White House officials who had frantically tried to prepare the country for a disappointing payroll number.

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“This is a strong jobs report,” said Chris Low, chief economist at FHN Financial in New York. “The odds of stifling inflation without a recession look better today than yesterday.”

Non-farm payrolls increased by 467,000 jobs last month, according to the establishment survey. Economists polled by Reuters had forecast that 150,000 jobs would be created in January. Estimates ranged from a decrease of 400,000 to a gain of 385,000 jobs.

Employment stands at 2.9 million jobs below its pre-pandemic peak.

Part of the surge in payrolls likely reflects the low number of layoffs following the holiday hiring season due to labor shortages. Although January’s decline in real employment matched that of previous years, there were large differences at the industry level.

The government also reported that 374,000 more jobs had been created in the 12 months to March 2021 than previously.

The resilience of the labor market could alter expectations that economic growth will slow significantly in the first quarter, after consumer spending left 2021 with a whimper. The economy grew at an annualized rate of 6.9% in the fourth quarter. Growth estimates for the first quarter are below a 2% pace.

Solid job gains, accompanied by the largest annual wage increase since May 2020, pave the way for the U.S. central bank to hike interest rates in March by at least 25 basis points to rein in the high inflation. Economists expect seven rate hikes this year.

“The report is unequivocally good for the economy, but not good for markets, as the strength in the numbers presents another data point that supports more aggressive Fed action,” said Cliff Hodge, chief investment officer at Cornerstone. Wealth in Charlotte, North Carolina.

Stocks on Wall Street were mixed. The dollar (.DXY) appreciated against a basket of currencies. US Treasury prices fell.

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THE LABOR POOL IS EXPANDING

People line up to enter the Nassau County Mega Career Fair at the Nassau Veterans Memorial Coliseum in Uniondale, New York October 7, 2014. REUTERS/Shannon Stapleton/File Photo

Economists braced for a weak jobs report as the government investigated company payrolls in mid-January when Omicron infections peaked. The Labor Department said 3.616 million people who had jobs were absent during the survey week due to illness.

Workers who are sick or in quarantine and are not paid during the payroll survey period are counted as unemployed in the establishment survey, even if they still have a job. The lowest-paid hourly workers in sectors like health, recreation and hospitality, which typically don’t have paid sick leave, have been hardest hit by the winter wave of COVID-19.

According to the latest government data, paid sick leave was available to 79% of civilian workers in March 2021.

The leisure and hospitality industry added 151,000 jobs in January. Employment in the health sector rose by 18,000. Gains were recorded in retail trade, professional and business services, and transportation and warehousing and wholesale trade.

Manufacturing payrolls rose by 13,000, but construction employment fell by 5,000, likely due to freezing temperatures. The government payroll has increased by 23,000 jobs.

Employment could rise further as coronavirus infections continue to decline. Initial jobless claims fell for the second week in a row last week.

The United States is reporting an average of 354,399 new COVID-19 infections per day, down sharply from more than 700,000 in mid-January, according to a Reuters analysis of official data.

The government has introduced new population estimates for the household survey, from which the unemployment rate is derived. The new assumptions had a negligible effect on the unemployment rate

rate, which rose to 4.0% from 3.9% in December.

The labor force participation rate, or the proportion of working-age Americans who have or are looking for a job, rose to 62.2% due to changes in the composition of the population, from 61.9 % in December. The workforce increased by 1.393 million people. The employment-to-population ratio fell from 59.5% in December to 59.7%.

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Other household survey details were solid. Employment increased by 1.199 million. The survey counts people who are employed as employees, whether or not they were paid during the survey week if they were temporarily absent from work due to illness, bad weather , holidays, social conflicts or personal reasons.

A broader measure of unemployment, which includes people who want to work but have given up looking and those working part-time because they can’t find a full-time job, fell to 7.1% vs. 7.3% in December.

With some lower-paid hourly workers at home, wage growth accelerated in January. The average hourly wage rose 0.7%, taking the annual increase to 5.7%, the biggest rise since May 2020. But the Omicron surge shortened the average workweek to 34, 5 hours compared to 34.7 hours in December.

“Overall, the U.S. economy appears to be on solid footing,” said Noah Williams, associate fellow at the Manhattan Institute.

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Reporting by Lucia Mutikani Editing by Chizu Nomiyama and Paul Simao

Our standards: The Thomson Reuters Trust Principles.

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