January Jobs Report: Starting out 2024 with a Bang

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’s Lead Economist Daniel Zhao

The January jobs report kicks off 2024 with a bang. Hotter than expected payroll growth and accelerating wage growth paint a picture of a job market that’s starting 2024 on the right foot. The January jobs report is always difficult to interpret because of the myriad revisions to seasonal factors, benchmarks, population controls, but overall, the jobs report is a good sign. A soft landing is still possible amid positive job gains and low unemployment.

Payroll Growth Jumps

Payroll employment growth beat expectations, rising to 353,000 in January from 333,000 in December.

Retail trade added 45,200 jobs on a seasonally adjusted basis. This is likely an artifact of shifting seasonal patterns where employers post-COVID are less reliant on seasonal workforces. As a result, we may see this boost reverse in the March jobs report.

Health care & social assistance (+100,400 jobs added) drove significant job gains in January. Health care, education and government accounted for 57% of jobs added in 2023 and that trend is continuing in 2024 as these three sectors account for 42% of jobs added in January.

Revisions Surprisingly Boost Payroll Estimates for 2023

Revisions from the benchmark update pushed jobs growth for 2023 up to 3.1 million over the year, up from the originally reported 2.7 million. The 3.1 million jobs added in 2023 is roughly in line with the total job gains from 2014–2015, above the average annual job gains from 2016–2019. The revisions were largely in line with the preliminary estimates from August, but despite the downward revisions, the updated data actually paints a stronger picture of the job market in 2023.

The downward revisions were most significant in transportation & warehousing (-163,200 for March 2023) and professional & business services (-127,000), two sectors that had both enormous growth and a subsequent hangover in the last few years.

Part of the negative revisions was a lower estimate of net jobs added due to opening vs. closing businesses. This effect removes 330,000 jobs from the BLS estimate of payroll employment as of March 2023, suggesting new business formation and/or business failures were worse than originally reported.

Unemployment Rate Flat

The unemployment rate was 3.7 percent in January. Because of updates to population controls, this is not directly comparable to the 3.7 percent in December, though the population control updates did not meaningfully change the unemployment rate estimate. Overall, it still suggests that unemployment remains low by historical standards.

Prime-age labor force participation is starting off the year at 83.3 percent, similar to the levels from the end of 2023. Similarly, the prime-age employment-population ratio is at 80.6, also similar to levels in the second half of 2023. Overall, they point to a job market that is holding steady.

Looking back at 2023, immigration contributed greatly to the strong labor force growth. So far in January, it is still contributing but it is not a given that this will repeat in 2024 which may crimp more progress on labor force growth.

Wage Growth Jumps

Average hourly earnings jumps to 4.5% year-over-year in January, up from the upwardly revised 4.3% in December. This rate of wage growth on top of the significant upward revisions (December was revised up to 4.3% from 4.1%) is likely still too high for the Federal Reserve’s liking, though improving productivity suggests there is room for stronger wage growth and falling hours and quits rates signal that hourly wage growth may decelerate in the coming months.

Conclusion

The end of year revisions reaffirm the story of a 2023 that was more resilient than originally thought, and the first job market of the year continues that theme into 2024 with better than expected payroll growth. Wage growth was revised upward and was hotter than expected in January, which will likely give the Fed more confidence that holding off on rate cuts is the right move. A soft landing is still in the cards for 2024.

More Insights

Payrolls grew 353,000 in January, well past expectations. December and January both were much stronger than originally reported, though new seasonal trends around turn of year means the true underlying growth rate is probably a touch lower.

Payroll growth over 2023 came in at 3.1 million jobs added, lower than the recent Covid recovery years but faster than the pre-Covid years 2000–2019. The annual revisions reaffirm the strength of the job market in 2023.

The annual benchmark revisions pushed down jobs growth in 2022 and early 2023, but raised them through the rest of 2023. As a result, 2022's jobs market was cooler than originally reported but 2023's was hotter.

As a result, 2022 was cooler than originally reported but 2023 was hotter. Transportation & warehousing peaked much earlier than thought in mid-2022. And the jobs decline for information (including tech and media) was steeper than originally reported.

Almost every major sector added jobs in January with health care a major contributor.

Education, health care and government made up about 57% of job gains in 2023, but January stood out with its broad based job gains.

Many sectors that have been weak recently saw upticks in employment in January: Professional & business services, retail, transportation & warehousing, manufacturing, finance, information.

Wage growth was revised upward pretty significantly and accelerated further in January to 4.5%. On a 3-month annualized basis, it's at 5.4%. This is much hotter than expected and likely reaffirms Fed's position to not cut rates yet.

Average weekly hours did drop sharply to the lowest since March 2020, though this may be due to the cold weather in January.

The unemployment rate is 3.7% to start the year, a historically strong level. Usually, economists caution against comparing December to January data bc the BLS will update population estimates then, though they had little impact on the estimated rate this year.

The prime-age employment population ratio and labor force participation rate are both starting the year off at levels similar to those seen in Q4 2023. Hopefully, these figures will see some continued recovery after softening in the back half of 2023.