Feb 3, 2023 - Economy

America's mind-blowing labor market

Illustration of the "mind blown" emoji as an exploding coin.

Illustration: Shoshana Gordon/Axios

Jobs reports simply don't get any better than the one we received Friday morning.

No caveats needed: This is a rip-roaring labor market, in stark defiance of months of recession chatter — and the Federal Reserve's efforts to slow things down.

Why it matters: American workers — outside of a handful of sectors — are experiencing some of the most plentiful opportunities in generations — even as inflation has been coming down.

  • That is a precarious balance (more on how the Fed might react below), but it is a remarkable state of affairs. The jobless recoveries of the early 2000s now look like ancient history.

The details: Economists expected jobs growth to decelerate, but instead it surged ahead, with an addition of more than half a million jobs (517,000) in January.

  • The unemployment rate hit an ultra-low 3.4%. To find a water mark lower than that, you'd have to go all the way back to 1953.

State of play: The blowout job gains may be exaggerated by seasonal adjustments or other statistical quirks. But even if they are ultimately revised lower, a consistent message is being sent by labor data across the board with ultra-low jobless claims and rising numbers of job openings.

  • The hiring slowdown that was supposed to come alongside the Fed's aggressive tightening has not materialized. It sets up something of a conundrum for officials.
  • "It's difficult to see how wage pressures can possibly soften sufficiently when jobs growth is as strong as this," Seema Shah, chief global strategist at Principal Global Investors, wrote in a note.
  • "It's even more difficult to see the Fed stop raising rates and entertain ideas of rate cuts when there is such explosive economic news coming in."

Yes, but: For now, wage pressures appear to be flat or diminishing, contrary to what economic theory would predict in a booming job market. Rock-bottom unemployment paired with decelerating inflation is an economic dream scenario.

  • Average hourly earnings rose 0.3% in January, slowing slightly from December's upwardly revised 0.4% pace. Over the year through January, hourly earnings are up 4.4%.
  • Over the last three months, wages rose at a 4.6% annual rate — on the high side of what the Fed would consider consistent with achieving its 2% inflation target, but not accelerating.

The intrigue: January is a notoriously difficult month to interpret jobs data, with annual adjustments made by the Labor Department — some of which are done to account for seasonal patterns.

  • "We got a lot of these gains because employers kept on seasonal workers they would typically lay off," says Diane Swonk, chief economist at KPMG U.S. "This is a lot of labor hoarding, everywhere from leisure and hospitality to retail to construction."
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