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January saw the strongest job gains since last summer

SCOTT DETROW, HOST:

We got a report on January's job growth today, and it was a blockbuster. The Labor Department says U.S. employers added more than a half million jobs last month, and that is far more than forecasters had expected. Updated numbers now show that over the last two years, the country has added more than 12 million jobs. President Biden called the report strikingly good news.

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PRESIDENT JOE BIDEN: Twelve million more Americans get up every morning knowing they can provide for their families with a dignity and sense of self-worth that had been missing.

DETROW: The surprisingly strong job market is good for workers, but it could make it harder to bring inflation under control. And we will talk about all of this with NPR's Scott Horsley. Hi, Scott.

SCOTT HORSLEY, BYLINE: Hi, Scott.

DETROW: So, Scott, forecasters expected to see a modest slowdown in hiring last month. And instead, we got this. What is going on?

HORSLEY: Yeah, it's a bit of a head-scratcher. Many indicators had pointed to a slowdown in economic growth, you know, partly as a result of rising interest rates. We know that consumer spending has cooled in recent months. Factory orders are down. And ordinarily, you'd think that would lead employers to cut back on hiring. Instead, we got the strongest job gains since last summer, 517,000 jobs added in January. Now, there is a caveat to that. Some of that job gain may not reflect workers being hired last month but rather fewer people being laid off in January after the busy Christmas shopping season. Either way, though, there were more people drawing paychecks last month. And economist Sarah House of Wells Fargo says that suggests the job market is still chugging along.

SARAH HOUSE: We got such a big headline after the seasonal adjustment because businesses are laying off a lot fewer workers than is typical. And I think that reflects that we're still in a very tight jobs market where businesses are reluctant to let go of the workers they do have, considering it is so hard to go out and find new ones.

HORSLEY: This was also the month when the Labor Department makes its annual revision to the jobs numbers, using more complete information from employers' tax records. And that process shows that hiring in 2021 and early '22 was even stronger than initially reported.

DETROW: Wow. So then let's get to the next headline. The unemployment rate - it's very low. How much lower could it go at this point?

HORSLEY: Yeah, the jobless rate's been really low for a long time. And it fell even lower in January, just 3.4%. That's the lowest since 1969. And for African Americans last month, the unemployment rate was 5.4%. In five decades of government record keeping, there's only been one month when the African American unemployment rate was lower than that.

DETROW: Does that mean employers are having to pay workers more?

HORSLEY: Yeah, it's interesting. Wages are going up, but they were actually going up faster earlier last year. The annual wage gain in January was actually the smallest since the summer of 2021. So it looks as if wage gains are cooling off. The good news is inflation is cooling off, too. And for the last few months, wage gains actually outpaced inflation, so workers' paychecks stretched further. Workers can buy more now, not less. And that's the opposite of what was happening for much of last year.

DETROW: But then the Federal Reserve is saying that it is concerned that wages are rising too fast. Why is that?

HORSLEY: That's right. Even though wages are not climbing as fast as they were, the Fed thinks they're still climbing fast enough that they could put upward pressure on prices, especially in labor-intensive service industries. And if so, then the Fed might have to push interest rates even higher to get inflation under control. Now, oftentimes, that's the kind of thing that can spook the stock market. But the market did not seem unduly worried by today's jobs report. So maybe January brought some economic sunshine that's not going to be accompanied by storm clouds on the horizon.

DETROW: NPR's Scott Horsley. Thank you, Scott.

HORSLEY: You're welcome. Transcript provided by NPR, Copyright NPR.

Scott Horsley is NPR's Chief Economics Correspondent. He reports on ups and downs in the national economy as well as fault lines between booming and busting communities.