January Jobs Report: Off to the Races in 2023

The latest jobs numbers are out from the U.S. Bureau of Labor Statistics. What do they mean for job seekers, employers and investors? Here’s a quick take from Glassdoor Senior Economist Daniel Zhao.

The job market is getting a fast start off the blocks as 2023 begins. Today’s jobs report from the U.S. Bureau of Labor Statistics shows the labor market grew substantially, adding 517,000 jobs with the unemployment rate dropping to 3.4 percent, the lowest since 1969. As the new year begins, the job market is beating back recession fears.

Payroll Employment Growth Jumps

Payroll employment grew by 517,000 in January, accelerating rapidly from 260,000 in December. After revisions, the labor market added 4.8 million jobs in 2022, the second-highest since 1940 after 2021. Despite recession fears and inflation woes, 2022 was marked by a surprisingly resilient labor market and the first report of 2023 is an echo of that.

Benchmark revisions added 568,000 jobs to the March 2022 payroll employment level. While this doesn’t affect our view of the trajectory of the labor market in 2023, it does signal that growth was faster in early 2022 than originally reported. In fact, the labor market returned to pre-recession payroll employment levels in June 2022, rather than August 2022, taking only 28 months, the fastest recession recovery pace since the 1981 recession. 

Payroll Growth by Industry

Job gains were largest in leisure & hospitality (+128,000 jobs added), health care & social assistance (+79,200), and professional & business services (+82,000). As a new round of tech layoffs began in January, the information sector lost 5,000 jobs. Some of the announced layoffs were likely not captured by the reference week for the January jobs report, so they may trickle through in coming months.

Transportation & warehousing gained 22,900 jobs and retail trade gained 30,100 jobs. The seasonal adjustment may be artificially boosting job gains in these highly seasonal sectors as the usual seasonal patterns are disrupted by the pandemic and labor shortages. Employers may have wanted to hold onto seasonal workers this January even after the holidays.

Unemployment Rate Decrease to Historic Low

The unemployment rate was 3.4 percent in January. The unemployment rate is at its lowest level since May 1969. The BLS’s update to its population controls mean that the rate is not strictly comparable between December 2022 and January 2023; however, the rate is still historically low.

Wage Growth Falls to Slowest Since August 2021

Average hourly earnings grew 4.4 percent year-over-year in January 2023, decelerating from 4.8 percent in December. This is the slowest pace of wage growth since August 2021. The slowdown in wage growth may give the Federal Reserve more confidence that the job market is growing more sustainably even if topline jobs growth is high.

Conclusion

The job market is off to the races at the start of the new year. The odds of a soft landing have improved in the last month as inflation has cooled while the labor market has remained resilient. Today’s report does raise the question of whether the job market is “in balance.”

However, the totality of evidence we’re seeing suggests that inflation is moderating and the job market is cooler than it was a year ago. Today’s payroll print is unlikely to be repeated in the coming months, but it likely does give pause to a Federal Reserve concerned about overheating.

The theme for 2022 was a surprisingly resilient labor market in the face of historic inflation. Today’s report is an echo of 2022.

More Insights

The job market accelerated in January, getting a fast start off the blocks, with 517,000 jobs added. That's the fastest rate since last July.

Changes in seasonal patterns may have boosted job gains in January. Non-seasonally adjusted payrolls declined by 2,505,000 in January, the smallest month-over-month percentage decline in January since 1984. Employers may have held onto seasonal workers after the holidays because of concerns about the difficulty in rehiring them later.

Job gains were largest in leisure & hospitality, health care and professional & business services, like they have been for much of the last year. Retail and transportation & warehousing returned to job gains and some of their previous job losses were revised away. Information stood out as one of the weaker sectors, losing 5,000 jobs.

Benchmark revisions boosted payroll growth substantially in 2021 and 2022. Payroll growth in 2021 was revised up to 7.3 million, the highest since 1940. Payroll growth in 2022 was revised up to 4.8 million, second highest since 1940.

Benchmark revisions by industry do show some changes. Information, finance and professional & business services hiring was stronger in 2022 than initially reported. The drop in warehousing jobs since mid-2022 has been revised away, though there's still a slowdown.

Because of the stronger payroll gains, payroll employment recovered to pre-recession levels in June 2022 (or 28 months), the fastest recovery pace since 1981.

With the revisions, the largest shortfalls remaining relative to pre-pandemic are in leisure & hospitality and government, though both are nearing pre-pandemic employment levels.

Average hourly earnings growth decelerated to 4.4 percent year-over-year from 4.8 percent. The 3-month growth annualized though is 4.6 percent and has hovered in that range since spring 2022.

Average weekly hours rebounded to 34.7 hours after falling in Dec, rising to its highest level since March 2022, assuaging some fears of employers cutting hours in anticipation of a recession.

The unemployment rate fell to 3.4 percent in January, the lowest level since May 1969.

The Black unemployment rate dropped to 5.4 percent in January, nearing the record low. The record low for Black workers is 5.3 percent last seen in Aug 2019.