March 06, 2024
The January jobs report had a number of surprises, most of which were probably due to unusually bad weather in much of the country and also problems with seasonal adjustments. If that is the case, we should expect to see these erratic movements at least partially reversed in February.
At the top of this list is the unusually strong growth in the hourly wage and the fall in the reported length of the workweek. The average hourly wage jumped 0.6 percent in January, the largest increase since February of 2022. At the same time, the length of the average workweek fell by 0.2 hours, leading to a decline of 0.3 percent in the index of aggregate hours, in spite of the strong job growth reported for the month. These movements can be related if workers missed hours due to snow but were paid anyhow.
The other big anomaly is a drop in the number of people reportedly working full-time in the household survey. This actually was a December story, where there was a reported drop in full-time employment of 1,530,000 from November. There was little change in January, but this left the January 2024 level just 430,000 higher than its year-ago level. That is difficult to reconcile with the 2,930,000 job growth reported in the establishment survey, as well as a wide range of other data about the labor market and the economy.
Wage Growth Falls Back Toward Trend
A key issue for the future path of inflation is whether wage growth looks more like its path at the end of 2023 or if January marks a reacceleration. As noted before, excessive wage growth was not the cause of the inflation we saw during the pandemic, but the economy clearly cannot sustain anything close to the January pace without it being passed on in prices.
Other data do not seem consistent with a tightening in the labor market that would support a rapid acceleration of wage growth, but this will be a key question in the February report. If the January number was an anomaly, we should expect to see very little wage growth in February.
Hours and Productivity
The January drop in hours was most likely a quirk due to the weather, but if hours really did fall, it further supports the case for a serious uptick in productivity growth. (It’s worth noting that if the household survey’s measure of employment growth proves to be closer to the mark, it implies that productivity grew even more rapidly than the official data indicate.) We will most likely see an increase in the length of the average workweek in February, roughly back to its December level of 34.3 hours.
Even with a rebound in hours, it is likely we will have another good quarter for productivity growth. With the fall in the hours index in January, the growth for the quarter will almost certainly be very small. Low growth in hours, coupled with respectable GDP growth, translates into strong productivity growth.
Job Growth
The 353,000 jobs reported for January was considerably stronger than most analysts had expected. Some of this was likely due to quirky seasonal adjustments, most obviously in retail. The sector reportedly added 45,200 jobs last month after reportedly losing roughly the same number in November. That is probably due to changed seasonal hiring patterns.
Healthcare added 70,300 jobs in January, an uptick from its rate of 57,000 over the prior year. Healthcare costs have been well-contained through the pandemic and recovery, but this rapid pace of hiring will almost certainly mean higher inflation in the sector if it is sustained.
Construction and manufacturing both had healthy job gains in January. The growth in manufacturing was particularly surprising, with the sector adding 23,000 jobs after adding just 14,000 jobs between January and December. This sort of growth will almost certainly not be repeated, and we may even see some job loss.
State and local governments have also been adding jobs at a rapid pace. This is mostly catch-up, as employment just passed the pre-pandemic levels two months ago, but job growth in the public sector since the pandemic is still far behind private sector growth.
Another Month of Sub-4.0 Percent Unemployment
February is likely to be the 25th consecutive month of sub-4.0 percent unemployment. While the unemployment rate has remained low, employment growth in the household survey has trailed the establishment survey by more than 1.3 million over the last year. The most likely explanation for the gap is that the population controls are missing some of the country’s population growth.
In any case, the sharp shift from full-time to part-time reported in December is likely to be at least partially reversed. There is nothing obvious in the economy that would explain this sort of movement.
Prime Age Employment Rates Stagnating
The prime age employment to population (EPOP) ratio bounced back to its pre-pandemic high of 80.6 percent in March of last year when it hit 80.7 percent. Since then, it has bounced around with no clear trend. It was at 80.6 percent in January, it was as high as 80.9 percent last summer, and fell to 80.4 percent in December.
The EPOP for women peaked at 75.3 percent from July to October. This is 0.6 pp above its pre-pandemic peak and the highest figure ever. It stood at 75.0 percent in January.
Unemployment Due to Quits
The share of unemployment due to voluntary quits fell to 12.8 percent in January. That is still consistent with a healthy labor market but down considerably from the peak of 16.0 percent hit in 2022. The year-round average for 2018 was 12.6 percent and for 2019, 13.6 percent.
Another Strong Report
All signs suggest this should be another solid jobs report. If the January report was affected to a large extent by seasonal adjustment issues and bad weather, we should see that partly reversed in the February report. This will likely mean job growth will be somewhat slower than its trend pace. Also, wage growth will be weak if the January numbers were inflated by weather effects.
Hours will be an important item to focus on. The weak number for January was surely at least partly attributable to weather, but how much of a bounce back we see in February will tell us whether we are likely to see another quarter of strong productivity growth. If the streak of strong growth continues it will mean a very good story for inflation and living standards.
