Another shockingly good jobs report shows America’s economy is booming

Americans continued to feel more upbeat about the economy this month, according to the University of Michigan’s latest consumer survey released Friday.

Consumer sentiment soared 13% in January, according to the university’s final reading, confirming what a preliminary estimate showed earlier this month. Sentiment reached its highest level since July 2021, “reflecting improvements in the outlook for both inflation and personal incomes.”

“After reserving judgment last fall about whether the slowdown in inflation would persist, consumers now feel assured that inflation will continue to soften,” Joanne Hsu, the university’s Surveys of Consumers director, said in a release. “Sentiment has resumed the upward trajectory from the all-time low measured in June of 2022, which had stalled in the late summer and fall of 2023.”

Indeed, inflation slowed markedly throughout 2023 as both economic growth and the job market remained on strong footing. It’s clear that inflation weighs heavily on US consumer sentiment. Sentiment reached a record low in June 2022, which was the same month that inflation reached a four-decade high.

Still, the university’s sentiment index remains well below pre-pandemic levels, but if inflation continues to cool further, then sentiment would likely follow suit, recovering further. The job market holding steady would also boost US consumer moods, since personal incomes were also a big reason why sentiment jumped in January.

Pedestrians walk past the New York Stock Exchange on January 19.

The US economy added a whopping 353,000 jobs in January, racing past economists’ expectations.

Here’s what Wall Street has to say:

Campaign signs are displayed outside a polling location in Londonderry, New Hampshire, on January 23.

Former President Donald Trump said the economy would tumble. He said the stock market is booming because of the prospect of his victory. And he’s promoting conspiracy theories about the Fed considering rate cuts to favor President Joe Biden.

Former South Carolina Gov. Nikki Haley has attacked Biden’s record on inflation and the cost of living.

But the economy, fresh off a shockingly strong year in 2023, is expected to grow at an even stronger 4.2% rate in the first quarter. And today’s jobs report shows America’s economy remains surprisingly strong.

A new CNN poll shows Biden still has a lot of convincing to do: Perception of the economy remains deep under water. But the mood is heading in a positive direction — which should come as a relief to Biden, because the economy is one of his weakest issues, according to favorability polls. However, if hiring remains strong and inflation keeps falling, it may become easier for Biden to convince voters he’s doing a good job strengthening the economy.

Wage growth picked up in the beginning of the year, remaining at historically strong levels not seen in pre-pandemic times.

Average hourly earnings for private workers rose by 19 cents in January, or 0.6%, to $34.55. That’s a stronger monthly gain than December’s 0.4% increase. From a year ago, wages were up 4.5%, down slightly from 2023’s peak of 4.7%, but well above any annual wage increase on Labor Department records going back to 2007.

That means Americans might just be gaining more spending power. Inflation slowed markedly throughout 2023, not showing any signs of picking up in the final months of last year. If inflation gauges due later this month show that price hikes continued to cool in January, or simply held steady, then that’s a big win for American workers who are continuing to earn more.

For the Fed, strong wage growth could make it harder to successfully defeat inflation. That’s because strong wage growth points to employers’ labor costs rising, and those higher costs could be passed on to consumers, but another key factor economists consider is productivity.

Wage gains can indeed be robust without stoking inflation — if productivity is keeping up. The goods new for now is that data this week showed that productivity, measured as nonfarm employee output per hour, rose at a solid 3.2% annualized rate in the fourth quarter.

People walk by the New York Stock Exchange in the Financial District of New York City in March 2023.

US stocks opened mixed on Friday following a stronger-than-expected jobs report and earnings beats from tech giants Amazon and Meta. 

The blue-chip Dow Jones Industrial Average lost 63 points, or 0.2%, on Friday morning. The S&P 500 was up 0.2% and the tech-heavy Nasdaq Composite was 0.3% higher.

Investors are closing out a week full of labor data with a January jobs report that far exceeded Wall Street’s expectations. The economy added 353,000 jobs and the unemployment rate remained unchanged at 3.7% last month. Wages also grew by 4.5% year over year. 

The news pushed Treasuries higher – the yield on the 10-year Treasury was up about 0.14%, and crossed the 4% threshold. 

In the past, a strong labor market has worried Wall Street because the Federal Reserve has cited it as a reason to keep interest rates higher for longer. But at the central bank’s January meeting, Fed Chair Jerome Powell indicated that Wall Street should treat good news as good news.

“I think we look at stronger growth, we don’t look at it as a problem,” Powell said. “At this point, we want to see strong growth. 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.”

In corporate news, Big Tech popped after Amazon and Facebook-parent Meta beat earnings expectations. 

Meta shares soared by about 16% after the company also announced a $50 billion share buyback program and said it would pay a quarterly dividend for the first time.

Amazon shares grew by 6.1% following an earnings beat. 

Apple shares, however, slid 2.9% after the company said sales in China had declined.

A whopping number of jobs were added last month — so how did the unemployment rate hold firm at 3.7%?

By definition, the unemployment rate captures the share of unemployed people as a percentage of the labor force. The labor force is the total number of people employed and unemployed. To be considered unemployed, you don’t necessarily have to have been laid off recently.

The Bureau of Labor Statistics classifies someone as unemployed if they aren’t working but are available for work and made a specific effort in the past month to find a job. If they don’t satisfy that criteria, they aren’t considered part of the labor force.

What that means is the unemployment rate will increase when the number of unemployed people increases by more than the number of employed people in a given month.

There’s one other wrinkle, though. The so-called “headline jobs number,” or the number of jobs that were added in a month, is a product of a different survey than the one used to calculate the unemployment rate. That’s another reason why there can be months when a lot of jobs are added and the unemployment rate increases.

Federal Reserve Board Chairman Jerome Powell speaks during a news conference in Washington, DC, on Wednesday.

The latest jobs data shows that America’s job market remains shockingly robust in the face of the highest interest rates in 23 years.

And the January report could have finally quelled Wall Street’s belief that the Federal Reserve could start to cut interest rates as soon as March, according to futures.

About a month ago, the odds of a March cut were north of 75%, but as of Friday morning, they were below 19%, according to the CME FedWatch tool. The Fed’s March 19-20 meeting is still several weeks away and many economic reports are due by then, but investors finally seem to be coming to grip with what Fed officials have been communicating all along.

At this week’s Fed policy meeting, Fed Chair Jerome Powell pushed back on the market’s expectation of the first cut coming in the spring, saying that “there was no proposal to cut rates,” and that cutting in March is “probably not the most likely case.” Officials need to see “greater confidence” that inflation is on a sustainable path toward 2% before considering rate cuts, he said.

Friday’s report does not necessarily worry policymakers at the central bank because inflation has come down substantially since reaching a four-decade peak in the summer of 2022 as the labor continued to hum along. But economists widely agree that it will be highly unlikely for inflation to drift all the way to the Fed’s 2% target without a further weakening in the job market.

Inflation’s slowdown in recent years was mostly due to supply-side developments, such as improving supply chains, so the final mile of the Fed’s historic inflation would have to be helped along by waning demand.

The January jobs report shows that demand is expected to remain solid, with Americans employed and enjoying strong wage growth.

“So much for imminent recession fears,” said Mark Hamrick, senior economic analyst at Bankrate.

“The US economy has continued a surprisingly robust sustained recovery after the pandemic, working through the elevated number of job openings and with prices that remain elevated after inflation has come off full boil. This moderation, or normalization, still has some way to go,” he said in a note Friday.

And the jobs data offers more good news for American households.

“Workers were making more money, broadly speaking. Average hourly earnings are up 4.5% over the past 12 months, marking an acceleration. Some of this stems from the boosts in minimum wages in 22 states and dozens of localities as the year began,” he said.

But even though interest rates remain high, that’s not all bad. There are many low-risk options to get the best yield on funds you plan to use within two years, and also on cash you expect to need within the next two to five years.

Read more here about how to take advantage of the current high interest rate environment.

Friday’s whopper of a jobs number was double expectations, and December’s data was one of several months to get heavily revised. Why are economists’ forecasts frequently so wrong?

It’s nearly impossible to say with certainty how much prices rose or how many people were hired at a given point in time across an entire country’s economy. Finding out how many new hires there were in a given month would involve asking every employer how many people were on their payrolls. That’s why the government and other economic data providers often rely on surveys to make sophisticated estimates.

The BLS, Census Bureau and other government agencies that conduct surveys that inform economic reports do rigorous work to make the best possible estimates with the information they gather. And more often than not they do a tremendous job at it.

But surveys, by nature, are imperfect.

In the same way that election polls don’t always predict the candidate who ends up winning, surveys don’t capture the exact true picture. However, they can get pretty close to the truth.

In election polls and government surveys, there’s a sample size of respondents designed to be representative of the overarching group studied. The larger and more diverse a sample, the closer an estimate will be to the true value.

Getting a large and diverse sample requires a lot of outreach to recruit people to be part of a group that BLS and other agencies enlist to regularly respond to a given survey. The rate at which people are getting recruited for surveys that are used in many of BLS’ monthly reports including employment, Consumer Price Index and Job Openings and Labor Turnover are down sharply from before the pandemic.

But Laura Kelter, national estimates branch chief within the division of Current Employment Statistics at the BLS, told CNN the declines can be attributed to a variety of challenges including the voluntary nature of participating in the surveys as well as survey fatigue — that is, people getting bombarded with too many surveys.

Changes in technology like caller ID and spam filtering, and heightened concerns about confidentiality and data security are also at play.