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The Line: Employment Rose By 517,000 in January

Gregory Heym is Chief Economist at Brown Harris Stevens. His weekly series, The Line, covers new developments to the economy, including trends and forecasts. Read on for the latest report and subscribe here to receive The Line in your inbox.

No, that’s not a typo, and no, I can’t really explain it.

I can’t help but hear Oprah Winfrey shouting, "you get a job, and you get a job, and you get a job!"

Humor aside, here are the big takeaways from this morning’s jobs report:

  • Payrolls rose by 517,000 last month, easily crushing the187,000 jobs that economists were expecting.

  • The above number signifies thehighest monthly job gain since July 2022, halting a five-month streak of slowing job growth.

  • The unemployment rate fell to 3.4%— the lowest unemployment rate since May 1969.

Most of the time, when a report seems too good to be true, you can often find an issue upon deeper inspection, but that’s the case this time.

The annual rate of growth for wages fell from 4.8% in December to 4.4% last month. Normally, this would be a bad thing, but not in today’s economy. As I mentioned last month, financial markets want wage growth to decline, as it will help slow the economy and reduce inflation.

If this report alone isn’t enough to put a smile on your face, we received two other bits of data this week that should do the trick. Weekly jobless claims fell to a nine-month low, and thenumber of job openings in the U.S. rose to just over 11 million at the end of last year—a five-month high.

With headlines regularly reporting layoffs by large companies, and many speculating a recession right around thecorner, people are asking, "How is this labor market data so good?" In the end, talk is simply talk until action is taken. Companies can announce layoffs, but they don’t always happen right away. Additionally, small businesses are responsible for the bulk of job growth since COVID-19, and many of those are still desperate for workers.

We should also remember that hiring has remained at strong levels, even with the highest inflation in 40 years. As such, expect the unexpected when it comes to these monthly reports.

In the end, the January employment report is most likely an outlier, and won’t by itself change most economists’ forecasts. The past two years have seen record job growth, yet consumer spending has declined for the past two months, homebuilding is down sharply, and both the services and manufacturing sides of the economy are contracting, according to the Institute for Supply Management’s latest reports.

Regardless, when you get a gift like this great labor market data, it’s best to not ask too many questions and just enjoy it.

The Fed Hikes Another 0.25%

In a move that surprised no one, theFederal Reserve raised short-term rates by 25 basis points. This was their smallest rate increase since last March.

Chairman Powell stated that while the"disinflationary process has started,"—we’ve checked and he didn’t make up that word—the Fed must keep raising rates until inflation is no longer an issue. That means we are in store for at least one more rate hike, and don’t expect the Fed to even think about cutting rates this year. Chairman Powell also noted that the risks of raising rates too much were less than the risk of not doing enough. Translation: We never should have let inflation get this high, and we can’t mess up again.

Many ask why the Fed must keep raising rates when most economists say a recession is coming. The best analogy I can give you is when doctors prescribe antibiotics. They always say to finish theprescription even if you feel better, or the infection may come back. Though you may want to stop taking theantibiotic because it bothers your stomach, you have to continue.

Hope that helps.

Have a great weekend.



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