March 1, 2024

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Adding 353 thousand jobs and unemployment at 3.7%

Adding 353 thousand jobs and unemployment at 3.7%

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Employment rose sharply in January, with employers adding 353,000 jobs, highlighting a labor market that continues to challenge high interest rates and household financial pressures.

The Labor Department said Friday that the unemployment rate held steady at 3.7%.

Economists polled by Bloomberg estimated that 185,000 jobs were added last month.

This surprisingly strong performance was driven by significant salary increases in health care and professional services, but was also boosted by some quirks related to holiday hiring that may not persist in the coming months.

However, the performance was not just a one-month glitch. Job gains for November and December were revised down by 126,000, with December's tally upgraded to 333,000 from 216,000. The changes depict a stronger job market in the fall than previously thought.

“A review of last month’s numbers added to today’s report makes clear that the economy is breaking new ground,” says Jane Oates, president of WorkingNation, a nonprofit that raises awareness about the challenges facing American workers and a former head of employment at the Department of Labor. And the training department.

Are wages catching up with inflation?

Average hourly wages also rose sharply, rising 19 cents to $34.55, pushing the annual increase to 4.5% from an upwardly revised 4.3%. Since the spring of last year, wage increases have outpaced the still-high inflation rate, giving consumers more purchasing power.

Is the Fed expected to cut interest rates?

Hot jobs and wage gains may make the Federal Reserve more cautious about cutting interest rates anytime soon. The Fed initially plans to cut interest rates three times this year, but said this week that a cut in March is unlikely because officials want to ensure the pandemic-related inflation surge is tamed in the long term.

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“With payrolls exploding, a significant upward revision, and the unemployment rate falling, dreams of imminent Fed rate cuts will likely be crushed by today's report,” Jason Schenker, president of Prestige Economics, said.

The Fed is not expected to start cutting interest rates until the third quarter.

But other economists are still betting that the central bank will act in May. Federal Reserve Chairman Jerome Powell said this week that a strong economy and labor market can coexist with easing inflation and officials will not be dissuaded from cutting as long as price increases continue to slow.

Since wage gains fuel inflation, higher wage growth in January raises concerns. But the Fed will mostly focus on whether inflation reports over the next few months show a continued slowdown, says Kathy Bostiancic, an economist at Nationwide.

Which sectors are adding the most jobs?

Last month, professional and business services led job gains with 74,000. Health care added 70,000; Retail 45,000; Social assistance 30,000; and manufacturing 23,000.

Federal, state and local governments added 36,000 jobs.

In recent months, industries that are less sensitive to rising interest rates and fluctuations in the economy — such as government, health care, and social assistance — have accounted for the bulk of recent U.S. job growth. This pattern continued somewhat last month, but job gains were broader with professional services and manufacturers employing many more workers.

How many hours a week do most Americans work?

One glaring weakness in the report: The average workweek fell from 34.3 hours to 34.1 hours, the lowest level since the peak of the pandemic in March 2020. It is unusual for employers to give workers fewer hours at the same time they are adding more employees.

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At least a partial answer, Bostiancic says, is that companies are still experiencing severe labor shortages caused by the coronavirus over the past two years, and are reluctant to let workers go even if their sales are declining. They may even add some workers as they look to increase demand in the future.

Since companies have surplus employees, they give each of them fewer hours on average. This may indicate a slowdown in hiring in the coming months.

However, economist Lydia Boussour of EY-Parthenon says last month's unseasonably cold weather likely played a role in the decline in working hours.

How does weather affect employment?

January totals were expected to be skewed by some unusual cross currents. Cold, snowy weather in the Northeast and Midwest will likely dampen hiring in industries such as construction and restaurants, Goldman Sachs wrote in a research note. This appears to have happened at least partially, as construction added a modest 11,000 jobs, and restaurants and bars cut a few thousand.

Goldman said further declines were likely because unseasonably warm weather boosted hiring in December, paving the way for a decline as temperatures returned to closer to normal last month.

Meanwhile, retailers, hotels and trucking companies brought on fewer workers for the holidays than usual late last year, leading to fewer layoffs in January and higher hiring on a seasonally adjusted basis. That would likely swell payrolls by about 100,000, Goldman predicted, offsetting the weather-related hit.

What are the employment forecasts for 2024?

The bigger picture is that consumer spending and job growth are likely to slow significantly this year, as lower- and middle-income households deal with higher interest rates, record credit card debt, still-high inflation, and dwindling Covid savings.

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Moody's Analytics expects the United States to add an average of 72,000 jobs per month, down from 255,000 jobs last year and 399,000 jobs in 2022, as the wave of pent-up spending after the pandemic fades.

Will there be layoffs in 2024?

Big tech companies like Amazon, Microsoft, and Google have recently announced thousands of layoffs, and some economists continue to predict a moderate recession in 2024.

But most forecasters believe the nation will avoid deflation. The same tech giants that are cutting headcount in gaming and streaming are boosting headcount in artificial intelligence and machine learning, says Geir Doyle, senior vice president of Experis, the technology recruiting arm of staffing firm ManpowerGroup.