The U.S. economy started off 2024 with a bang, adding 353,000 jobs in January, much better than the expected 185,000¹. The unemployment rate remained at 3.7%, the lowest level in half a century². Wage growth also showed strength, as average hourly earnings increased 0.6%, double the monthly estimate¹. On a year-over-year basis, wages jumped 4.5%, well above the 4.1% forecast¹.
The January jobs report demonstrated the resilience of the U.S. labor market, which has been a key driver of the economic expansion that entered its 12th year last month. Despite headwinds from trade tensions, geopolitical uncertainties, and a slowing global economy, the U.S. employers continued to hire at a robust pace, creating jobs across various sectors.
The biggest gains were in professional and business services, health care, retail trade, and social assistance, according to the Bureau of Labor Statistics¹. The entertainment industry also recovered some of the jobs lost during the strikes in late 2023². Manufacturing, which has been hit hard by the trade war, added 23,000 jobs, the most since August 2023³.
The strong jobs report could raise questions about how soon the Federal Reserve will be able to lower interest rates, as it signaled in its latest policy meeting on Wednesday. The Fed kept the rates unchanged at 1.75%-2%, but indicated that it would be ready to cut them if the economic outlook worsened⁴. The Fed also said that it was closely monitoring the inflation situation, which has been running below its 2% target for most of the past decade.
The inflation pressure could increase in the coming months, as the higher wages and the phase one trade deal with China, which reduced some of the tariffs, could boost consumer spending and business investment. The consumer confidence index rose to 131.6 in January, the highest level since August 2023, according to the Conference Board⁵. The personal consumption expenditures index, the Fed’s preferred measure of inflation, rose 0.3% in December, the largest increase since April 2023⁶.
The U.S. economy is expected to grow at a moderate pace of around 2% in 2024, according to the Congressional Budget Office. The CBO also projected that the federal budget deficit would widen to $1.02 trillion in 2024, the first time it would exceed $1 trillion since 2012. The rising deficit could pose a long-term challenge for the U.S. economy, as it could crowd out private investment and increase the interest burden on the public debt.
Overall, the January jobs report showed that the U.S. economy is in a healthy state, with a strong labor market, rising wages, and solid consumer confidence. The main risks to the outlook are the uncertainties surrounding the trade negotiations with China and other countries, the potential escalation of geopolitical conflicts, and the upcoming presidential election. The Fed will likely remain cautious and data-dependent, as it balances the need to support the economy and to maintain price stability.
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