The US added 517,000 jobs in January, way above what anyone expected given the tidal wave of lay-off announcements. January’s payroll gains were the largest since July 2022 and snapped a string of five straight months of slowing employment growth.
However, analysts at the multinational banking and financial services ING Group (NYSE:ING) are skeptical that rapid hiring will continue.
“A real surprise, which is difficult to explain. We have to just take that on the chin and say despite seven consecutive monthly falls in residential construction output, three consecutive falls in industrial production and consumer spending disappointing in November and December firms are still happy to hire,” ING analysts said in a note to clients.
“Maybe the Fed will keep hiking for longer, but we will need to see the economy suddenly rebound to make this great job news continue.”
Lay-offs will weaken employment
“We have to be a little sceptical though given that confidence in America’s board rooms and the small business sector are below the levels seen at the worst point in the pandemic,” noted ING.
“This would hint at a more defensive mindset that focuses more on cost reduction rather than business expansion…We are not looking at another 500,000+ figure next month.”
Meanwhile, Srijan Katyal, Global Head of Strategy and Trading Services at the international brokerage ADSS echoed the same skepticism.
“It underscores the strength of the US economy in this moment - but there will certainly be questions as to how sustainable this jobs market is,” said Katyal. “With so many job losses across the tech sector, caution is the key word over how long this size of report can be retained in the near future.”
Food for thought for the Fed
Recent figures paint a mixed picture of the US economy. According to the Wall Street Journal, consumer spending, the main driver of economic growth, is starting to falter as is manufacturing. Most importantly, price increases are easing as a result of the Federal Reserve’s interest-rate increases.
Fed officials have been debating how much more they need to increase interest rates to cool the economy.
ING conceded it ensures another 25 bps hike in March, but “we have to be wary of extrapolating from this one data point.”
Meanwhile, Tom Gimbel, founder CEO of LaSalle Network, told CNBC that business was “fairly strong” for his recruiting and staffing firm in January.
“Sales hiring is still up, which is a very good sign,” said Gimbel. “In a bad economy, companies cut back on those areas. The only negative sign that exists is big tech. What we saw from big tech is they thought people were never coming back to the office again. They overhired.”
Intel, Alphabet and Facebook, have made layoff announcements affecting tens of thousands of workers. Other non-tech firms have also been axing jobs including FedEx (NYSE:FDX), Dow and Hasbro (NASDAQ:HAS).
Contact the author Uttara Choudhury at uttara@proactiveinvestors.com
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