January 29, 2024
Barring an unexpected jump, January will be the 24th consecutive month of below 4.0 percent unemployment. The economy is closing in the record of 26 consecutive months, set between November of 1967 and January of 1970. There is little reason to expect unemployment to change much from the 3.7 percent rate of the last two months.
We have seen slower job growth in recent months in the establishment survey with the economy adding an average of 165,000 jobs a month in the last quarter. We will likely again be close to this figure in January, although seasonal factors may push the number slightly higher.
2024 Population Controls Will Boost Employment
The establishment survey showed an increase in jobs of 2,697,000 over the last year, while the household survey showed a gain in employment of 1,883,000, a gap of more than 800,000. Some of this gap is explained by differences in concept, for example, a drop in self-employment would not show up in the establishment data but would mean a decline in employment in the household survey. However, much of the gap indicates differing measurements of employment using a common definition.
The adjustment in population controls, applied in January, typically raises the number of employed in the household survey. Last year it added 810,000 to the number of people reported as employed. That was an unusually large increase, but we are likely to again see a substantial boost to employment from the use of new population controls.
The new controls often do not affect measured employment equally across demographic groups. The 2023 controls increased the employment estimate for men by 812,000, while lowering it for women by 2,000. That sort of gap is extreme, but it is possible that the new controls will affect our picture of the distribution of employment and unemployment.
We will see the annual benchmark revision to establishment data with the February jobs report. The preliminary number, which has always been very close to the final number, showed a downward revision of 306,000 jobs, as of March 2023, the benchmark month. Job growth since March will not be affected by the benchmark.
Full-Time and Part-Time Employment
There was a large drop in reported full-time employment in December, with the number dropping by more than 1.5 million from November. This was most likely a quirk in the data, since there was nothing obviously taking place in the economy that was consistent with this sort of drop in full-time employment. (Most of the change was due to a drop in total employment and an increase in voluntary part-time employment, involuntary part-time rose by only 220,000.) It is likely that most of the reported December decline in full-time employment will be reversed in January.
Will Job Growth in the Establishment Survey be Broadly Based?
December job gains were fairly widespread across sectors, but the November growth was entirely in health care, government, and restaurants, excluding gains in manufacturing resulting from the end of the UAW strike. If job gains are limited to a small segment of the economy it provides some basis for concern about the durability of the recovery.
It would not be surprising if manufacturing shed a small number of jobs in January. Job growth has been essentially flat over the course of 2023. With several private surveys showing declines in manufacturing employment, a small drop in January is likely. This drop is likely to be non-durable manufacturing, which lost 55,000 jobs (1.1 percent of total employment) from last January to December.
Trucking is another sector where we may see modest job losses. The sector has lost 23,000 jobs (1.4 percent of employment) since May.
Health Care Sector Likely to Lead Job Gainers
Healthcare is likely to again be among the leading job gainers. It added 37,700 jobs in December. This is down from an average of 66,500 jobs over the prior six months, so there may be some bounce back in the January data.
Retail may also show strong gains. It added 17,400 jobs in December, but that was after a drop of 24,400 reported for November. The seasonal adjustments in retail around the holidays here are huge. If the November drop was due to changed seasonal hiring patterns, fewer layoffs in January should translate into strong job gains after seasonal adjustments.
Restaurants added 22,100 jobs in December, we should see comparable gains in January. The strong hiring in state and local governments is likely to continue. The motion picture industry added 11,400 jobs in December, with the ending of the actors’ strike. We should see another good gain in January, as production ramps up.
Wage Growth Remains Moderate and in Line with Productivity
There was a notable ramping up in the pace of wage growth in December, with the annualized rate over the prior three months coming to 4.3 percent. This may be somewhat higher than would be consistent with the Fed’s 2.0 percent target, but there are two important points of caution in considering these data.
First, productivity growth may be on a faster trend. We have seen three consecutive quarters of very strong growth. These data are extremely erratic, but if productivity grows at a 2.0 percent rate, then the economy can support a faster rate of wage growth and still hit the Fed’s inflation target.
The other point is that the profit share remains inflated relative to its pre-pandemic level. This means that if workers are to regain their share, wages have to outpace productivity by slightly more than the rate of inflation for at least a limited period of time.
Share of Unemployment Due to Quits to Remain High
It is a measure of labor market strength when workers are prepared to quit a job before they have a new job lined up. In December the share due to quits stood at 13.4 percent. This is a high share, consistent with a strong labor market, but well below peaks of more than 15.0 percent hit in 2022.
Overall Picture: A Strong and Sustainable Labor Market
We have seen a string of very good reports in the last half year, with the economy growing rapidly and inflation falling. When all the news looks good, it is natural to be concerned about bad things about to happen. Bad things can happen to the economy, but it is not easy right now to see what they would be.
