January 2023 had astonishing job growth. Here are some theories about why.

The latest report from the Bureau of Labor Statistics shows, well, a lot of jobs.

Amid high-profile layoffs in the technology, media and finance industries as well as continued fears of recession, the U.S. labor market continued to chug along. In the first month of the year, the U.S. economy added some 517,000 new jobs, far outpacing the 188,000 economists surveyed by Bloomberg had predicted. The unemployment rate fell to 3.4 percent — the lowest since the late 1960s.

But good news can never just be good news. It’s clear that even though we’re seeing astonishing growth, that doesn’t mean everything is smooth sailing.

Federal Reserve chairman Jerome Powell has said that low unemployment and high hiring numbers are signs of a tight labor market — something that the Fed thinks contributes to high inflation.

Powell has been emphasizing for months now that inflation won’t come down to his goal of getting inflation down to 2 percent, in his view, without a substantially looser labor market — one in which workers can’t demand continually higher wages from their current or future employers. In order to maintain low unemployment and low inflation, the Fed argues, it needs to be easier for workers to hire employers’ at their preferred wage, not the workers’.

These amazing jobs numbers might be a bit of a statistical illusion

It’s worth knowing that for longtime observers of the monthly jobs market reports, January numbers are always a bit weird. It’s a month when lots of companies start announcing layoffs as they reconcile their end-of-year books, but it’s also a month where “seasonal” jobs — extra workers at Target to help with the holiday shopping — tend to go away.

But this weirdness can also illuminate what’s really happening. The report also indicates that businesses may not be expecting a large downturn or recession in the near future. While there have been substantial layoffs in some industries, one reason the January figure was so eye-popping was because many employers did not layoff as many employees as they typically do in January.

One speculation is that companies kept a lot of those seasonal workers around after a long period knowing that onboarding new people in a competitive market is tough. Another is that these numbers will simply get adjusted downward in coming months, and this amazing jobs report will only be in line with previous months of good-but-not-great growth.

Because the jobs numbers are adjusted for these types of fluctuations, we don’t see a huge spike in reported employment in November and December even though retailers go on a hiring spree around then every year — if employers let go of fewer employers than expected, that translates to big jobs gains.

Yes, we’re still dealing with post-covid labor market weirdness

Additionally throughout the post-covid period, the Fed has been concerned with labor force participation lagging its pre-covid figures, which makes competition for workers more intense and can lead to growing wages. (Remember, from the Fed’s perspective, this can be bad.)

One measure of labor force participation has shown steady improvement with the portion of the “prime” aged workforce — those between ages 25 and 54 — who are either working or looking for work. This figure jumped and now sits at 82.7 percent, the same level it was at in September 2019. This could help explain why wage growth, while still high, is slowing down to 4.4 percent over the past year, according to the measure used by the BLS in this report.

This great report probably won’t change anything when it comes to interest rates

Powell said earlier this week that the Federal Reserve is likely to continue to raise interest rates, albeit at more modest intervals than it was last year.

This latest jobs report is unlikely to change that.

Thanks to Brett Zach for copy editing this article.