A Striking Jobs Report Suggests Stronger Labor Market Than Previously Thought—With Important Caveats
A Striking Jobs Report Suggests Stronger Labor Market Than Previously Thought—With Important Caveats
A Striking Jobs Report Suggests Stronger Labor Market Than Previously Thought—With Important Caveats
Today’s Jobs Report was truly striking, beating expectations for January and revising 2023 job gains upwards. It was also somewhat confusing, containing indicators of remarkable labor market strength alongside concerning indicators of weakness.
Here are four key takeaways:
- 2023 job gains were higher than previously estimated. Before today’s benchmark revisions, 2023 job gains were estimated at 2.7 million. Today’s report revises that estimate upwards to 3.1 million, which would make 2023 a blockbuster year for the labor market. One caveat, however, is that the household survey only shows a 1.9 million gain in the employment level over the same period. The two surveys are supposed to measure the same thing, one from the employer’s perspective and the other from the household’s. But the large divergence sheds some doubt on the spectacular topline figure.
- Job growth accelerated and broadened in January. Job gains rose to a striking 353K in January, and were revised upwards for December. They were also far more broadly distributed across the economy than they had been in the back half of 2023, with even manufacturing and retail—two sectors where job growth had been particularly weak in 2023—posting strong gains. Healthcare, and professional and business services, added robust numbers of jobs. One caveat is that the household survey showed a decline of 683K in December and 31K and January.
- Average weekly working hours dropped to the lowest level since the pandemic recession. During good economic times, the work week typically ranges between 34.3 and 34.6 hours. In January, however, the length of the work week plummeted to just 34.1 hours, the lowest number since 2010 outside the pandemic recession. That number is typically a reliable gauge of employer demand for workers. When consumer demand slackens, companies typically cut workers’ hours before cutting payrolls. Today’s work week reading could merely reflect bad weather and lost hours due to winter storms. But it could also be a warning sign that demand has softened and job cuts are looming.
- Wage growth accelerated, or turned negative, depending on how you measure it. Average hourly earnings grew 4.5% year over year, more quickly than in the prior two months. However, the sharp decline in working hours caused average weekly earnings to drop over the month and measure a much smaller year-over-year gain of just 3.0%. Economists believe that wage growth of around 3.5% would be consistent with the Fed’s 2.0% inflation target. If employee earnings are truly growing at a pace of 4.5%, that is reason to be concerned that inflation could stabilize at a higher rate. But if wages are only growing 3.0%, then the economy is more likely to cool too much and undershoot the Fed’s target. Whether wages are growing 4.5% or 3.0% also matters for understanding how U.S. consumers feel. Since the consumer price index has grown 3.3% over the past year, the first would imply robust real wage growth and expanding purchasing power, whereas the second would imply negative real wage growth and shrinking purchasing power. The second would be a serious headwind for the labor market.
Take a tour of the report through ZipRecruiter visualizations HERE.
