February 03, 2023
Wage Growth Remains Solid in Most Sectors
Labor Force Participation Measures Unchanged After Adjusting for Population Controls
The January jobs report was far stronger than had been predicted, with the economy adding 517,000 jobs. There was also a big increase in the length of the average workweek from 34.4 hours to 34.7 hours, which led to an extraordinary 1.2 percent rise in the index of aggregate hours. The average hourly wage increased by 10 cents, bringing the annual increase over the last three months to 4.6 percent. The overall unemployment rate fell to 3.4 percent, the lowest level since 1969.
The prior two months’ data was also revised up by 71,000. This brought the average gain over the last three months to 356,000 jobs.
The jump in the length of the average workweek may have been affected by seasonal factors. The unadjusted workweek ordinarily drops in January, but it actually rose by 0.2 hours this year. That could be partly attributable to better than normal weather for the reference week. Also, the reported declines of 0.1 hour in each of the prior two months may have overstated the true drop.
Job Growth Was Widespread Across Industries
Almost all sectors reported job gains in January. Construction and manufacturing, which are usually the sectors most sensitive to interest rate hikes, added 25,000 and 19,000 jobs, respectively. Even residential construction added 5,500 jobs. Employment in construction is now up 3.6 percent from pre-pandemic levels, while manufacturing is up 1.7 percent.
Restaurants and health care were the two biggest job gainers, adding 98,600 jobs and 58,200 jobs, respectively. Employment in health care is now 1.1 percent above its pre-pandemic level, while restaurant jobs are still down by 1.3 percent. Hotels added 14,800 jobs, but employment in the sector is still down by 11.9 percent from February of 2020. Retail added 30,100 jobs, putting employment 0.2 percent below the pre-pandemic level.
Sectors Struggling to Get Workers Added Jobs
Nursing homes and child care centers had been having trouble getting workers in the tight labor market, but both added a modest number of jobs in January. Nursing homes added 4,500 jobs, leaving employment 13 percent below its pre-pandemic level, while child care added 7,100 jobs, putting employment 5.5 percent below the pre-pandemic level.
State governments added 39,000 jobs in January, while local governments added 30,000. Employment in the sectors is still down by 3.8 percent and 2.1 percent, respectively, from pre-pandemic levels.
Labor Force Participation Measures Unchanged After Adjusting for Population Controls
The January data showed a 0.1 percentage point rise in both the labor force participation rate and the employment population ratio, but both were due to new population controls in the household survey. After adjusting for the new population controls, both were unchanged from their December level.
Nonetheless, the population controls did somewhat change the household survey’s overall picture over the last year. With the new controls, the survey now shows employment increased by 2,760,000 from January of 2022 to January of 2023, with the new controls increasing employment by 810,000.
However, there were also upward revisions to the establishment survey with the new benchmark for March 2022 being incorporated. This survey now shows a gain of 4,967,000 from January of 2022, which leaves an extraordinarily large gap of 2.2 million. The household survey showed employment growth of just 84,000 in January, after adjusting for the controls, so it continues to give a radically different picture of the economy.
Prime-Age Labor Force Participation Rate Still Below Pre-Pandemic Level
With the new population controls, prime-age (25 to 54) labor force participation is down 0.4 percentage points from its pre-pandemic peak overall, with a drop of 0.9 percentage points for men, and 0.1 percentage points for women. The drop in male LFPR from pre-pandemic level is largest for the 35-44 age group, down 2 percentage points from the pre-pandemic peak. But, if we compare to the 2000 peak, the drop for the 35-44 group is 3.7 percentage points, while the drop for the 25-34 age group is 5.2 percentage points.
Share of Unemployment Due to Job Leavers Rises
The share of unemployment due to voluntary quits rose to 15.3 percent in January. This is 0.1 percentage points higher than the 2000 peak, and 0.2 percentage points higher than the 2019 peak, but below levels hit in the fall.
Going in the other direction, the duration measures of unemployment all showed increases in January. The average duration increased from 19.5 weeks to 20.4 weeks, the median rose from 8.9 weeks to 9.1 weeks, while the share of long-term unemployed (more than 26 weeks) increased from 18.5 percent to 19.4 percent.
Mixed Story on Wage Growth
The December data had indicated that the hourly wage was slowing to a pace that was arguably consistent with the Fed’s 2.0 percent inflation target. While the December growth was a modest 0.3 percent, the annualized rate over the prior three months is 4.6 percent. This is likely faster than would be consistent with the Fed’s target.
However, the January figure is likely somewhat inflated by larger-than-normal cost-of-living adjustments which would not be fully picked up in the seasonal adjustments. This means from the standpoint of inflation fears, the picture may not be that bad. From the standpoint of workers seeing real pay increases, with wages outpacing inflation, it is very good.
Labor Market Still Very Strong
The January jobs data were strong by almost every measure. While the economy clearly cannot go on adding 500,000 jobs a month, it is likely that at least part of the January gains was due to unusual seasonal factors that will not be repeated.
It is also somewhat disconcerting that the household survey continues to show a very different picture of the labor market. It is not unusual for the surveys to be wildly out of sync for a month or two, or even longer, but the 2.2 million gap over the last year between job growth in the establishment survey and employment growth in the household survey is extraordinary. Most other data seem more closely aligned to data in the establishment survey, but further revisions may show a different story.
