Fed Chairman Powell says the job market is still strong. Here's what you should know about the numbers

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On Friday, the Bureau of Labor Statistics will release its first jobs report for 2024, which is expected to underscore the strength of the U.S. economy despite 11 interest rate hikes by the Federal Reserve.

The jobs snap comes just days after Fed Chairman Jerome Powell expressed confidence in the healthy economy and downward trend in inflation, but warned that “we still have a long way to go” before claiming victory in the proverbial soft landing (reducing inflation) without increasing unemployment).

Economists believe that the labor market definitely has enough fuel left in the tank to continue on the soft landing path: they forecast a monthly gain of 176,500 jobs and an increase in the unemployment rate from 3.7% to 3.8% (but below 4) . % for the 24th consecutive month), according to FactSet consensus estimates.

Still, there is plenty of labor market data to decipher between Thursday and Friday, more unrest than usual to overcome and the chances for volatility to increase.

January is typically a month of high job losses as seasonal workers are laid off after the holidays and other companies tighten their belts at the start of the calendar year.

That may make January's jobs report one of the most difficult to forecast, said Sarah House, senior economist at Wells Fargo.

“We will have a new season [adjustment] Factors for a month that is the most seasonal of months,” she said. “That makes it pretty difficult right off the bat, not to mention we have a December that was on the warmer side and could have supported hiring in December.”

To better identify the underlying trend for this and other months, the BLS applies seasonal adjustment factors to smooth the data. These are updated annually in January.

All in all, there is a chance for a positive surprise in the numbers, Boussour wrote, pointing out that EY expects a monthly increase of 275,000 jobs.

Friday's jobs report will also include the latest annual benchmark review of payroll data for the 12 months ended March 2023. Preliminary data showed that U.S. job growth was 306,000 jobs (or about 25,000 fewer per month) weaker than previously estimated.

“As usual, we expect that the final revision will be very close to the preliminary revision,” Boussour wrote.

In addition, the BLS will revise the household survey data (one of two surveys that make up the jobs report) to reflect new population estimates. This could distort monthly comparisons of some workforce data.

Similar to this time last year, headlines were dominated by large-scale layoffs at technology, media and transportation companies.

And similar to this time last year, they raise some concerns about whether these are signs of broader instability in the labor market.

But right now they appear to be fairly isolated, said Daniel Zhao, senior economist at employment review and job search site Glassdoor.

The tech layoffs appear to be a continuation of last year's “year of efficiency” mantra, Zhao said, adding that these companies appear to be rationalizing rather than operating from a point where they are no longer financially viable .

“Some of these layoffs, which are more aimed at streamlining and increasing efficiency, don't necessarily pose a risk of spillover into the broader economy,” he said.

The data tends to agree: Through December, the monthly number of layoffs and the layoff rate as a percentage of total employment remain well below pre-pandemic averages, according to previously updated BLS Job Openings and Labor Turnover Survey (JOLTS) data. Week.

Worker Adjustment and Retraining Notification Act notifications — government-required notices of impending mass layoffs or plant closings — also did not increase year-over-year, Wells Fargo's House said.

“These have slowed somewhat, which suggests that unless there really is a drastic drop in demand, we don't expect to see a spike in layoffs anytime soon,” she said.

However, given changing labor market dynamics, companies need to be more disciplined about their workforce; In particular, far fewer people are giving up, she said.

The number of workers voluntarily leaving their jobs is at its lowest since fall 2020, JOLTS data shows. The hiring craze of the last few years has subsided and there are fewer vacancies; Additionally, job changers now have less financial incentive: Their average annual salary gain was 7.2% in January, the lowest since May 2021, according to payroll processor ADP.

“The fact that the number of voluntary job terminations has slowed down significantly has caused companies to be a little surprised with their overall workforce because they thought they could balance the workforce through attrition, and this is what they found.” The dynamics of departures have changed dramatically,” House said.

New data on job losses and productivity

On Thursday, the picture of layoffs became clearer.

U.S. employers announced 82,307 job cuts in January, a 20% decline from the 102,943 job cuts announced in January of last year, according to a report from Challenger, Gray & Christmas released early Thursday.

However, excluding January 2023, last month's job cuts were the highest in January since 2009, according to Challenger.

“Heading into 2024, the landscape is one of stabilizing prices and the expectation of falling interest rates; It is also an election year, and companies are beginning to plan for potential policy changes that could impact their industries,” Andrew Challenger, senior vice president of the outplacement and research firm, said in a statement. “However, these layoffs are also due to broader economic trends and a strategic shift towards increased automation and AI adoption across various sectors, although in most cases companies cite cost cutting as the main reason for layoffs.”

The top reason cited for job cuts in recent months was “restructuring” (28,329), followed by “closure” (14,555) and market/economic conditions (7,559). According to the report, artificial intelligence was cited as a reason for 381 cuts last month.

Unemployment claims – another measure of layoff activity – remain below pre-pandemic levels; However, they rose more than expected last week, according to data released by the BLS on Thursday.

Initial jobless claims rose by 9,000 to 224,000 in the week ended Jan. 27. Continuing claims, filed by people who have received benefits for at least a week, rose by 70,000 claims to 1.898 million – the highest level ever since mid-November last year.

Rising permanent claims may indicate that it is becoming increasingly difficult for the unemployed to find a job.

However, a separate indicator shows that companies were extremely efficient by the end of 2023.

U.S. labor productivity rose 3.2% in the fourth quarter, according to a BLS report released Thursday. While that's down from 4.9% in the third quarter, it beat expectations for a 2.1% gain. Productivity growth can help reduce inflationary pressures.

In 2023, the labor market theme was “resilience”.

The U.S. added nearly 2.9 million jobs through 2023, according to non-seasonally adjusted data from the BLS. Barring pending revisions, last year marked the 21st highest annual total of any record dating back to 1939.

It shouldn't work like that. After all, the most aggressive monetary policy campaign in decades would certainly plunge the economy into recession.

Instead, job growth remained strong but slowed as expected; And while wage growth slowed significantly (in keeping with the Fed's spirit), people's paychecks ultimately weren't completely wiped out by inflation. Consumer spending remained robust, as did general economic growth.

“What was supposed to be the hardest mile in the inflation marathon for the Fed turned into a relay race,” said Diane Swonk, chief economist at KPMG, in an interview with CNN. “The employment gains went from the sectors that led the economy out of recession, that is, from sectors that were very sensitive to interest rates, to the sectors that are less sensitive to interest rates.”

But the United States is far from out of the woods.

The main drivers of job growth in recent months have been health care, leisure and hospitality, and the public sector, while hiring has stalled in most other industries.

“They are in a more fragile situation than they were a year ago, as gains – perhaps outside of January – have been concentrated in three sectors so far in the last six months,” Swonk said. “And we’ve already seen a vulnerability there, and October is a case in point.”

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