Economic Data Tracker –
Job growth helps boost our outlook

Economic Data Tracker

February 2, 2024

Our weekly view on the economy including rationale on GDP, jobs report, and Fed policy decisions. Download the entire weekly edition to view timely charts and data providing a comprehensive picture of how incoming economic data affects our economic outlook.

Trend watch

Most of the activity-based indicators (slides 5 and 6) are recovering after following typical seasonal patterns at year-end. There are several notable improvements.

First, rail traffic surged 37.3% in January thanks to motor vehicle rail carloads, which soared 78% from December and snapped a four-month decline streak. Of course, this is due to the restarting of auto production after the recent strikes. Also, global air cargo volumes in January rose 12% from a year ago, which is the strongest in over a year. That is partly due to the Red Sea issues we highlighted here last week and an early Lunar New Year that likely pulled some volume forward into January.

Second, the Kastle Back to Work Barometer – which measures badge-swipes for office workers – jumped to 51.8, the highest since the pandemic shutdown (pre-pandemic indexed to 100). As an aside, given the increase in hybrid-work and relaxed Fridays, the top reading will likely be permanently capped around 80%.

Lastly, air passenger traffic remains strong. It snapped a four-week decline streak. It is up 11.1% from the same 7-day period in ’19 and 7.1% above January ’23. Year to date passenger counts are up 9.1% compared to the same period in 2019. 

What’s new this week

  • Blowout job growth in January, while unemployment rate steady (slide 7).
  • Job growth remains resilient – staying above the pre-pandemic trend (slide 8). A look at the longer-term trend of monthly job gains.
  • Wages down from their peak but reaccelerating in January (slide 9).
  • Job openings and hiring up in December, while quit rate back at prior trend (slide 10).
  • We still expect a stepdown in U.S. growth in ’24, but outlook improving (slide 11).
  • ISM Manufacturing still contracts but improves, while prices moving up again  (slide 12). 

Our take

The U.S. economy remains resilient, with a blowout January jobs report showing hiring more than 330,000 workers in back-to-back months, while fourth quarter gross domestic product (GDP) clocking in above 3%.

The combination of more Americans with jobs and higher wages – coupled with cooler inflation generally – go a long way to bolster consumer finances. It is among the biggest reasons why the U.S. has continued to sidestep a recession, while large swathes of the world have sputtered (yes, we’re looking at you Europe).

Yet, the blowout January jobs report does validate the Fed’s patience with respect to cutting rates. It provides some context for Fed Chair Jay Powell’s comments on Wednesday that a March rate cut wasn’t likely. It also underscores our concern that a soft landing could be somewhat self-defeating – the stronger the economy remains ultimately translates into higher interest rates for longer. To be clear, we’d much prefer a stronger economy that needs fewer rate cuts than a weaker one that requires many more.

But inflation has thus far surprised to the downside, receding considerably in recent months, which supports the notion that rates can be reduced some. The Fed appears to agree, as evidenced by the majority of the rate-setting committee penciling in multiple rate cuts this year.

We were already of the opinion that the Fed would wait longer to reduce rates than markets were projecting. The January jobs report – and an increasing group of others – solidifies our view that the Fed will be patient, waiting until the summer. Perhaps they will begin in May or June, which hinges on additional incoming data. 

Bottom line

The cumulative impact of higher rates should continue to slow economic growth. However, the U.S. economy remains incredibly resilient as evidenced by the solid consumer spending trends, strong fourth quarter GDP, and now a blowout January jobs report. These up the chances of soft-ish landing. 

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