In a month marred by a record-length partial government shutdown, the United States labor market continued to expand in January, upending expectations by adding 304,000 new jobs, according to data released Friday.
The Bureau of Labor Statistics said in its monthly jobs report the unemployment rate ticked up slightly to 4 percent despite job gains in the leisure and hospitality, construction, health care, and transportation and warehousing industries. In the 100th consecutive month of job growth, average hourly earnings were up 3.2 percent over the previous year.
“January’s jobs numbers are further evidence that show wages are growing, business optimism is strong, and the economy is thriving,” the White House said in a press release Friday morning.
Aparna Mathur, a resident scholar at the American Enterprise Institute, said the jobs report contained a lot of good news, including gains that far exceeded some economists’ predictions of about 170,000 new jobs.
“I think people’s forecasts were a bit muted thinking the government shutdown would ripple through to the private sector,” Mathur said.
About a quarter of the government was shut down for 35 days beginning Dec. 22 due to disagreement over President Donald Trump’s demands for border wall funding. Lawmakers passed a bill reopening the shuttered departments last Friday, but they face another deadline on Feb. 15.
If members of Congress are unable to agree on wall funding by then, President Trump has strongly telegraphed that he is likely to declare a national emergency rather than force another shutdown. If that is the case, the danger to the labor market may have passed.
“To the extent that things have gone back to normal and this reprieve is not temporary, then I expect things to be running as expected and not diverging from trends so much,” said Elise Gould, senior economist at the Economic Policy Institute.
About 800,000 federal employees were affected by the shutdown, with some furloughed and others working without pay. Now that the government has reopened, they are receiving back pay, but many federal contractors will not. The Congressional Budget Office also estimated about $3 billion in lost economic activity will not be recouped.
Because they will eventually get paid for the Jan. 12 pay period, furloughed federal workers were counted as employed in the payroll survey, which determines job gains and losses. The household survey used to calculate the unemployment rate treated them as temporarily laid off.
“There were no discernible impacts of the partial federal government shutdown on the estimates of employment, hours, and earnings from the establishment survey,” the BLS report stated.
The furloughed workers, federal contractors temporarily left without work, and employees of private businesses that lost revenue because of the shutdown likely contributed to the increase in the unemployment rate, but Mathur said the damage could have been much worse.
“In terms of the impact on contractors and others expected to show up as unemployed in the data, those worries have been assuaged,” she said.
The January jobs report also adjusted the number of new jobs created in December down by 90,000, an unusually large correction the BLS did not fully explain.
“That is a bit of a worry. I’m not sure what’s going on,” Mathur said.
Strong jobs reports have contributed to the Federal Reserve’s decisions to increase interest rates in the past to keep the economy from overheating, and rates were hiked several times in 2018. However, the Fed announced Wednesday it is holding rates at current levels for now and it aims to be “patient” in the months ahead.
“In light of global economic and financial developments and muted inflation pressures, the Committee will be patient as it determines what future adjustments to the target range for the federal funds rate may be appropriate to support these outcomes,” the Fed stated.
That language suggests one particularly good month will not drive the Fed to change its outlook.
“Ordinarily, I would imagine it would, but the chairman just made a statement saying we’re going to be patient and not react to new job numbers coming out,” Mathur said.
Gould cautioned that the low unemployment rate may overstate the strength of the job market. The fact that wage growth remains relatively sluggish indicates the labor market still has room to grow before inflation becomes a significant concern.
“We have an idea that we’re moving closer but the fact is the labor market’s not tight enough for workers to exercise more leverage in bargaining over wages with their employers,” she said.
A rising labor force participation rate suggests more workers are out there who gave up on job-hunting after the Great Recession and are starting to look again. If thousands of people are re-entering the workforce each month, experts expect the labor market will continue to grow.
“As long as we have an economy where more and more workers feel confident coming out and finding jobs, that’s a great thing,” Mathur said.