Friday, February 3, 2023

US employment growth likely to be strong in January, but wages may be cooling

Despite a labor market that has remained resilient and solid job growth in the US in January, the Federal Reserve could find some solace in the anticipated further slowdown in wage growth as it fights against inflation.

Today's eagerly anticipated employment data from the Labour Department is also anticipated to reveal that the jobless rate increased to 3.6% last month from a more than 50-year low of 3.5% in December. It would enable the US central bank to maintain a gradual rate hike pace and lower the chance of a crisis this year while focusing on wage inflation.

The economy "can return to 2% inflation without a pretty large downturn or a really big increase in unemployment," Fed Chair Jerome Powell told reporters on Wednesday. Economists are increasingly in agreement with that statement as wages begin to moderate and inflation begins to trend downward.

Kate Bahn, chief economist at the Washington Centre for Equitable Growth in Washington, stated that wage growth was slowing down less than inflation. "For the Fed, it really makes the point that you don't necessarily need to rely on tempering labor market growth to manage inflation if the labor market is not the cause of inflation," says the author.

According to a Reuters survey of experts, the survey of businesses will probably reveal that nonfarm payrolls grew by 185,000 last month after increasing by 223,000 in December.

Following a similar increase in December, an increase of 0.3% in average hourly wages is anticipated. In such a case, the annual salary growth would have decreased from 4.6% in December to 4.3%.

The prediction for payrolls, however, is surrounded by a lot of uncertainty; estimates range from 125,000 to 305,000.

The government will release its yearly "benchmark" revisions with the January employment report and update the algorithms it uses to smooth the data for typical seasonal swings in the establishment survey. New population projections will also be included in the household survey, which is used to calculate the unemployment rate. As a result, the unemployment rate for January won't be directly comparable to that of December.

The Bureau of Labor Statistics (BLS) of the Labor Department predicted last year that the economy added 462,000 more employment than previously thought in the year leading up to March 2022. The new benchmark level and updated seasonal elements will also be used to update the payroll data for the months of April through December. The workweek and average hourly wages will also change as a result of the modifications.

Additionally, the BLS will update its system for classifying industries, which will lead to a 10% reclassification of employment. A change and industry reclassification "will influence more historical data than is customary in the yearly benchmark process," the company said last month.

Focusing on revisions

After experts from the Philadelphia Fed issued a report in December suggesting that employment growth in the second quarter was overestimated by a million jobs, the revisions likely draw attention. However, economists have disputed this assertion.

According to Jonathan Millar, a senior economist at Barclays in New York, "there are a few kinds of estimates out there from various surveys that seem to doubt what's being published right now by the BLS for employment." However, the issue with seasonal adjustments and how you apply them is truly the main cause of their differences.

The flooding in California in mid-January and the snowstorms in the mid-West were not anticipated to have a significant impact on payrolls by economists. Despite massive layoffs in the IT industry and interest rate-sensitive businesses like banking and real estate, the labor market is nevertheless strong.

According to government figures released this week, there were 11.9 opportunities for every unemployed individual at the end of December, with 11 million job openings overall.

Although the leisure and hospitality industry most likely contributed to job growth in January, the return of 36,000 Californian university workers who had been on strike also definitely helped.

Still, the foundation is developing fissures. Jobs for temporary staff, a sign of upcoming hiring, are probably down for the sixth consecutive month. The typical workweek remains constant at 34.3 hours, which is a more than 2-1/2-year low. Usually, businesses cut hours before they slash staff.

The Fed guaranteed "ongoing rises" in borrowing prices as it increased its policy rate by 25 basis points on Wednesday, bringing it to a range of 4.50–4.75 percent.

The labor force will be keenly monitored by economists to determine whether the present rate of job growth will continue. The percentage of Americans who are working-age and either have a job or are seeking for one is still one full percentage point lower than it was before the outbreak.

According to Christopher Kayes, head of the department of management at the George Washington University School of Business, "there are still a lot of people who are sick and can't work full time." Many families still struggle to secure childcare, and many people hold down part-time jobs.

US employment growth likely to be strong in January, but wages may be cooling

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US employment growth likely to be strong in January, but wages may be cooling