Kiplinger Jobs Outlook: January Better Than Expected

last updated 2 February 2024

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Job gains of 353,000 in January showed the labor market still has momentum, though this should fade over the next few months — the current pace is unsustainable. January’s surprise followed an upwardly revised December gain of 333,000. January gains were widespread across industries, especially in healthcare. Hospitality work did not share in the bounty this time, however, posting a small jobs loss.

Strong job gains in January are partially illusory, especially in retail.
Since the pandemic, the number of seasonal workers hired in the fall and fired in the spring has dropped. That is causing smaller reported job gains in October-November and larger “gains” in January because there are fewer seasonal workers being let go than previously. (The jobs report numbers are all seasonally adjusted.) But even if part of January’s number is the result of seasonal adjustment issues, the remainder still portrays a healthy labor market. Of course, economists will be keen to see February’s report, since these holiday-related seasonal issues should be much less of a factor by then.

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The unemployment rate was unchanged at 3.7%. There was some evidence of modest weakening, as the number of workers forced to work part-time schedules because of soft demand rose in January. We see a modest slowing of the economy in the near future, which should boost the unemployment rate a bit, but only to 4.2%.

Annual wage growth surged to 4.5% in the January report, but again, this was somewhat illusory. Snowy conditions across most of the eastern United States in January caused the number of hours worked to drop, but since most pay remained the same, earnings per hour jumped. Some of this increase will likely be reversed in the February report.

January’s jobs report will likely give the Federal Reserve a headache. Does the report show a still-hot economy? If so, then interest rate cuts should be delayed until at least mid-year. Is the labor market’s strength partly illusory? If so, then a rate cut may happen earlier. We think the Fed is going to want to wait to see more data, so that a rate cut as early as March is definitely off the table, but a cut on May 1 is still a possibility.

David is both staff economist and reporter for The Kiplinger Letter, overseeing Kiplinger forecasts for the U.S. and world economies. Previously, he was senior principal economist in the Center for Forecasting and Modeling at IHS/GlobalInsight, and an economist in the Chief Economist's Office of the U.S. Department of Commerce. David has co-written weekly reports on economic conditions since 1992, and has forecasted GDP and its components since 1995, beating the Blue Chip Indicators forecasts two-thirds of the time. David is a Certified Business Economist as recognized by the National Association for Business Economics. He has two master's degrees and is ABD in economics from the University of North Carolina at Chapel Hill.