A Jobs Report Almost Too Good to be True

A Jobs Report Almost Too Good to be True

It Is Still Very Much a Job Seeker’s Market

Today’s jobs report is almost too good to be true. When, in a recent speech, Fed Chair Powell said, “I continue to think that there’s a path to getting inflation back down to 2 percent without a really significant economic decline or a significant increase in unemployment,” many observers agreed that such a “soft landing” best-case scenario is plausible but improbable. Now we’re seeing something even more improbable: falling inflation combined with falling unemployment. 

Like $20 bills on the sidewalk and free lunches, falling inflation paired with falling unemployment is the stuff of economics fiction. It’s almost as though we’re in a world with no tradeoffs, where the normal discordant tensions in the Fed’s dual mandate have magically resolved into harmony. 

“It always looks like a soft landing at first,” warns Michael Kantrowitz, however. There are still many risks ahead. And, of course, the Fed’s interest rate hikes haven’t been a free lunch entirely. They have wiped out trillions of dollars in value from the stock market and crypto. But for now, at least, the gains of the job-full recovery appear to be safe.

Here are some key takeaways from the report: 

Job growth was very strong and broad-based.

After slowing for several months, job growth accelerated in January, with 517K net new jobs added. In addition, job growth appears to have been stronger throughout 2022 than previously estimated, clocking in at a remarkable 4.8 million, more than twice the 2015–2019 average of 2.28 million. The vast majority of industries added jobs in January, with the diffusion index (a measure of the breadth of gains) coming in at an exceptionally high 69.0. (In good times when the economy is expanding, numbers between around 52 and 57 are typical).  

Participation remains weak.

Following the BLS’s annual population adjustments, labor force participation remains sluggish. At 62.4% in January, it is still well below the pre-pandemic rate of 63.3%. The major reason for lower participation overall is the large decline among older workers. At 80.2%, the prime-age employment-to-population ratio is close to its pre-pandemic peak of 80.6% and moving in the right direction. 

Wage growth continues to moderate.

Wage growth continued to moderate, falling from 4.8% to 4.4% on a 3-month annualized basis. It was as high as 6.4% in 2021. 

Leading recession indicators are no longer worrisome.

As of the last jobs report, employment in temp help services appeared to have fallen 110.1K since August. Temp help employment tends to rise first when the economy is expanding and fall first when it is contracting, so the sustained decline was worrisome. In January, temp help services employment rebounded, easing recession fears somewhat.  

Average weekly hours signal strong demand for labor.

In good times, the work week tends to be 34.3–34.6 hours, on average. After the Covid outbreak began, short-staffed businesses became excessively reliant on overtime hours. The work week ballooned to 36.0 hours as scarce workers were forced to take on extra shifts. In the December report, working hours appeared to have fallen for six consecutive months, all the way down to 34.3—the bottom end of the “good” range. Now, not only has past data been revised upwards, but the average work week measured 34.7 hours in January, above the normal range. It now signals very high demand for labor, not slackening demand.