US jobs growth unexpectedly rebounded in January, as the economy continued to perform strongly despite the Federal Reserve’s efforts to damp demand.

Employers in the world’s largest economy added 517,000 jobs in the first month of the year, nearly double December’s figure, which was revised up to 260,000. Economist expected 185,000 positions to be added.

The unemployment rate fell to a historic low of 3.4 per cent. Average hourly earnings edged up another 0.3 per cent since December, translating to a 4.4 per cent annual pace.

US government debt extended a sell-off following the release of the data. The yield on the two-year Treasury was up 0.16 percentage points to 4.26 per cent. Yields move inversely to price. Futures for the S&P 500 were down 1.3 per cent, having been about 0.5 per cent lower before the release of the report.

The data, released by the Bureau of Labor Statistics on Friday, comes as the Federal Reserve debates how much more it needs to tighten monetary policy in order to bring inflation back down to its longstanding 2 per cent target.

The US central bank this week switched back to a more orthodox pace of interest rate increases after a string of big moves last year, lifting the federal funds rate by a quarter of a percentage point to a new target range of 4.50 per cent to 4.75 per cent.

Speaking on Wednesday, Fed chair Jay Powell struck a more optimistic tone about the economic outlook and the central bank’s handle on what has been one of the worst inflation shocks in decades. That ignited speculation the Fed is closer to ending its rate-rising campaign earlier than previously signalled.

Despite acknowledging that the “disinflationary process” had begun, Powell cautioned it was still in the “early stages” and that price pressures remained too intense, especially those linked to what he described as an “extremely tight” labour market.

Underscoring the strength of the labour market, job openings in December jumped again, bringing the total number of vacancies to 11mn. Unemployment claims also fell last week to their lowest level in nine months. Wage growth has ebbed, however, and companies have begun to cut back on labour costs, both by slashing hours and cutting temporary workers from their payrolls.

Powell on Wednesday reiterated that there was still a “path” to bringing inflation under control without a painful economic downturn and excessive job losses, although he did note that a “softening” of the labour market would be necessary.

With a worker shortage persisting, Powell said “this is not like the other business cycles in so many ways”. In December, the labour force participation rate, which tracks the number of Americans employed or searching for a job, held steady below its pre-pandemic level, at 62.4 per cent.

Most economists polled by Bloomberg expect the US to tip into a recession this year and for the unemployment rate to rise to almost 5 per cent.

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