Modest slowdown in US job growth expected in January © Reuters. FILE PHOTO: A “Help Wanted” sign hangs in a restaurant window in Medford, Massachusetts, U.S., January 25, 2023. REUTERS/Brian Snyder/File Photo

By Lucia Mutikani

WASHINGTON (Reuters) – U.S. job growth likely slowed marginally in January as a resilient economy and strong worker productivity encouraged most businesses to retain their employees, a trend that could see the economic expansion sustained this year.

The closely watched employment report from the Labor Department on Friday could further diminish financial market expectations of an interest rate cut in March, with annual wage growth forecast to have maintained its solid pace last month.

The Federal Reserve left interest rates unchanged on Wednesday. Fed Chair Jerome Powell offered a sweeping endorsement of the economy’s strength, telling reporters that interest rates had peaked and would move lower in coming months.

Most economists were dismissive of recent high-profile layoffs including 12,000 job cuts announced by United Parcel Service (NYSE:) this week, arguing that the focus should be on worker productivity, which has exceeded a 3% annualized growth pace for three straight quarters and cooling labor costs.

“There are increasing reports of some layoffs, but I don’t see that there’s any significant change in terms of the overall momentum of the economy,” said Brian Bethune, an economics professor at Boston College. “If workers are productive, why wouldn’t you want to hire?”

The survey of establishments is likely to show nonfarm payrolls increased by 180,000 jobs last month after rising 216,000 in December, according to a Reuters poll of economists.

Estimates ranged from 120,000 to 290,000. The employment gains would be below the monthly average of 225,000 jobs in 2023, but well above the roughly 100,000 per month needed to keep up with growth in the working age population.

Economists estimated that layoffs in January, a spillover from the end of the year, were below normal. That would boost the job count number after accounting for seasonal fluctuations and would also offset the drag from winter storms that slammed large swaths of the country in mid-January. The snowstorms could, however, shorten the average workweek.

Employers are generally wary of sending workers home following difficulties finding labor during and after the COVID-19 pandemic. But some companies, which enjoyed a boom in business during the pandemic, are laying off workers as conditions return to normal.

“While businesses are starting to moderate the size of their workforce by either reducing temporary hires or reducing the number of hours that their workers they have on staff work a week, they haven’t yet moved to lay off workers,” said Beth Ann Bovino, chief economist at U.S. Bank in New York.

“That’s because, well given 2022, businesses realize that holding onto workers for the possibility of a run-up in demand as we saw last year, could come in handy.”


Job growth last month was likely across the private and public sectors. Economists will be eager to see job growth continuing to broaden after being concentrated for several months in 2023 in less than a handful of sectors, including government, leisure and hospitality, as well as healthcare.

With January’s employment report, the government will publish its annual “benchmark” revisions and update the formulas it uses to smooth the data for regular seasonal fluctuations in the establishment survey.

The government last year estimated the economy created 306,000 fewer jobs in the 12 months through March 2023 than previously reported. Payrolls data from April through December could also be revised. The benchmark revisions will also affect average hourly earnings and the workweek.

Average hourly earnings are forecast to have increased 0.3% in January after rising 0.4% in December. That would leave the annual increase in wages unchanged at 4.1% in January.

Annual wage growth would remain well above its pre-pandemic average and the 3.0% to 3.5% range that most policymakers view as consistent with the Fed’s 2% inflation target. But some economists are not worried.

“Markedly high productivity growth means the Fed should not be overly concerned about still strong wage growth dynamics,” said Oscar Munoz, chief U.S. macro strategist at TD Securities in New York.

Financial markets have dialed back their expectations of a rate cut in March and now expect the U.S. central bank to start lowering borrowing costs in May, according to CME Group’s (NASDAQ:) FedWatch Tool. Since March 2022, the Fed has raised its policy rate by 525 basis points to the current 5.25% to 5.50% range.

New population estimates will also be incorporated into the household survey, from which the unemployment rate is derived. January’s unemployment rate and other measures from the household survey will not be directly comparable to December.

The unemployment rate is forecast rising to 3.8% from 3.7% in December. It has risen from more than a five-decade low of 3.4% last April. Flows into the labor force as well as household employment will watched after large declines in December.


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