It may be my profession, but I am not prone to being very optimistic or highly positive on economic data releases. My colleagues have alternatively called me the “skunk at the party” or “Dr. Doom”. Yet, the latest jobs report left me speechless – in a positive way. One collaborator even remarked that “even Christian is positive.” So, here is my quick take on why the latest jobs market from the Bureau of Labor Statistics (BLS) had me changing my tune for once.
The two key topline numbers on jobs gains and the unemployment rate are obvious starting points. The U.S. economy added 517,000 jobs in January, after increasing by 260,000 in December. This was the largest jobs gain since July 2022. At the same time, the unemployment rate dropped to 3.4% in January 2023 from 3.5% in December 2022. This was the lowest unemployment since the spring of 1969. Both of these numbers already reflect how strong and resilient the U.S. economy is in the face of headwinds from rising interest rates and widespread economic uncertainty associated with the Republican lawmakers’ gamble with the debt ceiling.
But, those numbers are just the start. There is more, much more good news in the latest report. For one, the BLS revised its jobs estimates upwards for 2022. There were 813,000 more jobs in December 2022 than previously thought and the economy added 311,000 more jobs in all of 2022 than prior estimates showed. This is great news because more people found jobs but also because the labor market expanded faster than initially thought, while inflation subsided. The narrative that faster job growth puts upward pressure on prices, presumably due to higher wages – a point I will return to below – simply looks stale in the face of these numbers.
Further, the unemployment rate fell for the right reason – more people got jobs. The unemployment rate can occasionally fall for the wrong reason – people leaving a weak labor market because they are discouraged. This is clearly not happening. In the past two months, the labor force participation rate has increased from 62.2% to 62.4%, while the unemployment rate fell from 3.6% to 3.4%. This reflects 306,000 unemployed workers getting new jobs just in December 2022 and January 2023 alone.
Unlike the prior recovery from the Great Recession, employment gains have been wide spread by population groups. Importantly, January 2023 marked the full recovery of all jobs lost for women, who were especially hard hit by the pandemic. And, the share of women between the ages of 25 and 54 years old, who had a job, exceeded its pre-pandemic levels.
This is not all. Not only did people get more jobs, but they also worked longer hours. Average weekly hours for private sector workers grew from 34.4 hours in December 2022 to 34.7 hours in January 2023. This was the longest average workweek since March 2022. The increase of 0.3 hours per week may not seem like much, but it is the same as adding 1.1 million more people to the labor market at 34.4 hours per week. Employers were clearly on a tear in January 2023.
The additional hours also boosted average earnings for American workers. Hourly wages increased by an annualized rate of 3.6% in January 2023, while average weekly earnings grew by 14.1%. Moreover, inflation has been very subdued in recent months, so that both higher hourly wages and more hours provide a strong boost to people’s paychecks.
While wage growth remains positive, it is also slowing. Hourly wages, for instance, grew by an annualized rate of 4.8% in December 2022 but only at 3.6% in January 2023. At the same time, inflation has substantially moderated, so that people get to keep more of their hard earned money, even as wage growth slows. And, if this is not yet obvious, the storyline that a tight labor market will push up inflation because worker power translates into faster wage growth is finding less and less fuel to sustain. Inflation is coming down as supply chain bottlenecks have eased and the war in Ukraine takes less of a toll at the pump, while workers still see meaningful wage gains at manageable levels. At the end of the day, both workers and the economy are in a better place.
The past Congress, enacting President Biden’s priority legislation focused on boosting people’s incomes, reinvigorating the country’s infrastructure and lowering prices for key items such as prescription drugs and green energy investments has helped to build a strong, resilient economy that works for everybody. The resulting numbers are worth celebrating since they mean real differences in people’s financial security. Let’s just hope that policymakers at the Fed and in Congress do not risk it all.