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.
Here are the highlights from Friday's jobs report:
Employment rose by 223,000 last month, beating the Dow Jones estimate of 200,000.
Job growth totaled 4.5 million in 2022, the second-best year on record after 2021.
The unemployment rate ticked down to 3.5%, also better than the estimate.
Wages increased 4.6% over the past year, below the 5% estimate.
Upon initial overview, the first three headlines are great news, while the fourth item doesn’t seem so great—but that depends on how you look at the decline in wage growth.
You may be wondering, "What do you mean Greg?"
I’m glad you asked. It’s certainly bad for workers that wages keep growing at a slower pace than inflation. It reduces their purchasing power, making it harder to buy the goods and services they need. However, slower wage growth does have a positive side, as it will help bring inflation down over time. If workers have less money to spend, prices will have to come down at some point.
Remember, the definition of inflation is essentially too much money chasing too few goods. We have seen significant improvement on the supply side recently, and a reduction in wage growth will help bring down demand. From the stock market’s perspective, today’s report was excellent—not because of the better-than-expected job growth, but for the lower-than-expected wage growth. To the market, it means inflation is going down, raising the possibility that the Fed can stop hiking rates sooner than expected. I wouldn’t bet on that happening, as the Fed has made it clear it has at least three more hikes coming. Wall Street tends to overreact to things.
There were two other bits of good news on labor released this week. Job openings remain very high in the U.S., totaling 10.46 million in November. That’s over one and a half available jobs for each person looking for one. The report also showed workers keep quitting their jobs at a brisk pace, a sign of their confidence in finding new and better employment.
We found out yesterday that weekly jobless claims fell by 19,000 last week. Unemployment claims continue to remain at very low levels, despite the endless talk of mass layoffs by companies. We certainly can’t say there won’t be an increase in layoffs as the economy continues to slow, but we can say the data doesn’t show any noticeable increase as of yet.
In conclusion, today’s employment report is good news, so feel free to celebrate it. There’s still a lot of concern for the economy this year, but we luckily have a labor market that has defied the odds and remained very strong.
Happy Birthday, Dad
I lost my father a little over a year ago, and continue to miss him every day. He was not just my hero, but a man who enjoyed life more than anyone else I’ve ever met. So, on what would have been his 85th birthday, I will be doing all the things he would have wanted to do today: spending time with my family, going out for a great meal, and listening to music. He would have been dancing with every woman in the restaurant tonight, but unfortunately, I didn’t inherit his dancing ability. I will however be playing some of his favorite songs with the band, and the song I loved playing most for him: Horace Silver’s "Song for My Father." You can listen to it here.
Have a great weekend.