Economic Commentary

Economic Commentary

February 2, 2024

Strong job and wage growth to start ’24 up the chances of soft-ish landing

Executive summary

U.S. payrolls surged in January, adding 353,000 jobs, which was nearly double consensus expectations of 185,000. Plus, December was revised upward to 333,000, helping goose the six-month average to 248,200 from 192,800.

Wages grew at their fastest pace in two years, but hours worked fell. Meanwhile, the unemployment rate held steady at 3.7% for a third month in a row in part due to another drop in the workforce.

Ultimately, the labor market resilience reflects a solid, albeit cooling, U.S. economy. It also validates the Federal Reserve’s (Fed) patience with respect to cutting rates – and provides context for Chair Powell’s pushback regarding the possibility of a March rate cut. They will reduce rates, likely beginning in the summer, which would ease financing pressures on consumers and businesses alike, making a soft landing more achievable in our opinion.  


A review of the major industry trends

Private payrolls increased by 317,000, the most in the past 12 months. Government payrolls chipped in 36,000. Service-providing industries added 289,000 workers, also the most in the past year, while goods producers hired 28,000 workers.

Education/health services added 112,000, the most in the past year. About 90% were health care, sprinkled fairly evenly throughout the subindustry groups.

Professional & business services hired the most in 18 months, nearly 20% (14,500) were tech-related computer positions. Our hunch is that some of those are associated with artificial intelligence (AI).

Temporary help services, which is also within professional & business services industry group, finally added workers, 3,900 during January. That snapped an ugly 21-month streak that has cut 412,200 positions over that span. There are 5.6% fewer temporary workers compared to December ’19.

There was a downshift in government hiring, slipping to third place in January after being one of the largest job creators among the major industry groups for ’23. The bulk of those positions have been added on the local level; more specifically, local education, which accounts for 35% of all government jobs. Total government hiring is up just 1.6% since December ’19 compared to 4.5% for private payrolls, with about 54% coming from state and local levels.

Manufacturing continues to recover from last year’s auto strikes. The motor vehicle subcategory, which includes suppliers along with the big-name manufacturers, has recovered to pre-strike numbers and then some. Their payrolls are up 39,900, or 4%, from a year ago.

Transportation & warehousing payrolls also stopped shrinking, adding 16,000 in January. The couriers and warehousing subindustries both snapped multi-month decline streaks.

The remaining major industries largely maintained their current trends.  

Wages surged, while the unemployment rate held steady

Average hourly earnings rose 0.6% month over month in January, matching the fastest pace in two years and reaccelerating the annual pace to 4.5%. That’s well above the pre-pandemic 10-year average of 2.4%.

Average hourly earnings for rank & file workers—officially known as production & nonsupervisory employees—rose 0.4% during the month. That also reaccelerated the annual pace, which rose 4.8% and remains well-above its pre-pandemic pace. We suspect that some of this reacceleration is the result of the string of big union contract wins during the second half of last year.

The unemployment rate stayed at 3.7% for the third straight month. Yet, the broader underemployment rate (U-6) edged up to 7.2% – the highest level in nearly two years – from 7.1% in December.

Hours worked—officially known as average weekly hours worked for all employees—fell by 0.2 to 34.1, taking it slightly below the pre-pandemic 10-year average. Within manufacturing, hours worked remained at 39.8, which is in-line with the long-term average. However, overtime hours slipped to 2.7, the lowest level since the pandemic.

Our take

We aren’t surprised generally by the continued resilience of the labor market, though hiring more than 330,000 workers in back-to-back months is impressive. However, we are a bit startled by the magnitude of the strength, particularly the reacceleration of wages. As we mentioned here last month, 22 states had increased minimum wages on January 1st. Furthermore, there have been a string of union contracts that included sizable per hour wage increases in the second half of last year. Thus, these developments suggest the recent reacceleration is a level shift rather than something more ominous.

Additionally, we are encouraged by improvement on an industry level, which included several of the subindustries halting multi-month declines. That also jives with the recent uptick in job openings in November and December, as well as the subdued trend of weekly jobless claims, which remain well-behaved.

We are keenly aware of hours worked slipping below the long-term averages, which certainly isn’t a positive development. It remains to be seen if that will be revised away, though it could be related to the stronger-than-expected fourth quarter productivity reading of 3.2%. 

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