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PNC Chief Economist Gus Faucher: Huge January Jobs Number, Lowest Unemployment Rate Since 1969

Michigan Business Network
February 3, 2023 1:00 PM

pncfsg CroppedComplicate Fed Efforts to Slow Inflation
  • Employment rose by 517,000 in January, the biggest increase since July. There were also upward revisions to job growth throughout 2022.
  • The unemployment rate fell to 3.4%, the lowest rate since 1969.
  • Job growth was broad-based across industries.
  • The labor market is extremely strong in early 2023.
  • Given continued strength in the labor market, the FOMC will continue to increase the fed funds rate in the near term to slow job growth and cool off inflationary pressures.

Employment increased by 517,000 in January from December, according to a survey of employers, the largest jobs gain since July 2022. The consensus expectation was for gains of 185,000. The unemployment rate fell to 3.4% in January from 3.5% in December; this is the lowest unemployment rate since May 1969.

This report also included revisions to the 2022 employment data. Average monthly job growth in 2022 was revised up to 401,000, from 375,00, indicating that the labor market in 2022 was even stronger than initially reported.

The January jobs report was a stunner, with job gains of 517,000, more than double the consensus expectation, and a drop in the unemployment to the lowest level in almost 54 years. The Federal Reserve wants the labor market to cool off to slow inflation, but instead, it heated up in January. The extremely strong jobs report means that the Federal Open Market Committee will continue to raise the federal funds rate in the near term in an effort to slow economic growth, create more slack in the labor market, and cool off inflationary wage pressures.

Perversely, the very strong jobs report may be bad news for the economic outlook. With the FOMC continuing to hike rates in the near term, higher interest rates will weigh on the economy even more. But given the ongoing strength in the job market, if there is a recession it is likely not to occur until the second half of 2023.

Job growth in November was revised up to 290,000, from 256,000, and December job growth was revised higher to 260,000, from 223,000, for a total upward revision of 71,000. Job growth in the three months through January averaged a very strong 356,000, more than double the pre-pandemic pace of around 160,000. Private-sector employment rose by 443,000 in January, while government employment rose by 74,000.

After losing 22 million jobs in March and April 2020 with the pandemic, employment recovered strongly, returning to its pre-pandemic level in July 2022. Employment is now almost 1.7% (2.6 million) above its pre-pandemic level, a remarkable rebound.

This release includes updated population controls for the data from the household survey, used to calculate the unemployment rate. Employment as measured in the household survey rose by 894,000, but only by 84,000 after accounting for the new population controls. The labor force increased by 886,000 in January but actually fell by 5,000 after adjusting for the population controls.

The labor force participation rate—the share of adults either working or looking for work—rose to 62.4% in January from 62.3% in December, but it would have been unchanged after accounting for the population controls. The labor force participation rate was above 63% before the pandemic but has been slightly above 62% for the past year; the labor force is structurally tighter post-pandemic. The unemployment rate was 3.4% in January both with and without accounting for the population controls.

Employment rose by 46,000 in goods-producing industries in January, with solid increases of 25,000 in construction (despite a downturn in homebuilding) and 19,000 in manufacturing. Employment rose by 397,000 in private services-providing industries, including gains of 128,000 in leisure/hospitality services, 105,000 in education/health services, and 82,000 in professional/business services. Employment rose in temporary services by 26,000 in January after declines in November and December; temporary help services often leads overall employment.

Average hourly earnings rose 0.3% in January from December, the same pace as in December. The average workweek jumped to 34.7 hours in January from 34.4 hours in December. With more jobs, higher wages, and a longer workweek, aggregate pay rose a huge 1.5% in December from January, which will support consumer spending growth in the near term.

The PNC Financial Services Group, Inc. is one of the largest diversified financial services institutions in the United States, organized around its customers and communities for strong relationships and local delivery of retail and business banking including a full range of lending products; specialized services for corporations and government entities, including corporate banking, real estate finance and asset-based lending; wealth management and asset management. For information about PNC, visit www.pnc.com.

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