Economic Update: February 2024

While annual revisions also reduced total 2023 jobs by 266,000, employment gains last year amounted to 3.1 million, well above the previous estimate of 2.7 million. Unemployment may have remained so steady in recent months (in spite of robust job creation) as new workers entering the labor market found employment quickly. Women and immigrants in particular have been fueling the labor market’s growth. But while 2023 generally paints a robust picture in terms of jobs gains, there is always data underneath the surface that complicates the interpretation. One such detail: 2023 was the year with the most months recording a downward jobs revision since the survey began in 1979. Experts less favorable on the long-term economic outlook point to this as a sign there is more weakness in the labor market than is currently reported.

In contrast to recent months, January’s jobs gains were across the board rather than tightly clustered in a handful of industries. In fact nearly two-thirds of industries increased payrolls, the most seen in about a year. Professional and business services added 74,000 jobs, healthcare payrolls rose by 70,000, retail increased by 45,000, and manufacturing hired 23,000 more workers. Mining and logging was the only sector to shed jobs in January. Every sector, including leisure and hospitality, is now less than 100,000 jobs from pre-pandemic levels. Finally, temporary help services employment – often the canary in the coal mine on labor market outlook – rebounded by 3,900, upending a 21-month streak of declines.

On the less rosy side, the average workweek fell to 34.1 hours, which, discounting the pandemic, was the shortest reported since June 2010. This is often a sign that layoff activity may be increasing as employers look to lighten their payrolls before permanently reducing staff. One possible culprit? Winter weather. More than 500,000 missed work in mid-January because of bad weather, the largest for any January since 2011. There was also an increase in the number of people who had full-time employment but were only able to work part-time. This probably partially explains the marked decline in January’s average workweek. And it may also be a contributing factor in the wage growth seen in January: when salaried workers work fewer hours, their average hourly pay also increases.

Indeed, last month saw average hourly earnings increase by 0.6%, the biggest gain since March 2022, and following a rise of 0.4% in December. Not great news for the Fed, as this means wage growth is higher than the 3.0%-3.5% range that most policymakers view as suitable for attaining a 2% inflationary target. However current quit rates, generally considered a reliable predictor of wage trends, have slowed to pre-pandemic levels. We could infer that if workers are less sure of their ability to leave and find new employment elsewhere, employers may feel less pressure to raise wages to hold on to talent.

Recent job gains have highlighted that employers are willing to keep hiring in response to sustained consumer spending. And, as we’ve seen in recent months, consumer sentiment continues to rise despite persistently high prices. The University of Michigan’s Index of Consumer Sentiment has surged in the past two months by the most since 1991. In tandem, consumer confidence reached its highest point in two years in the latest Gallup Economic Confidence Index, and The Associated Press recently found that 35% of American adults believe the economy is favorable, an increase from the 30% who agreed late last year.

“Corporate America hit the accelerator to meet the increase in demand,” said Joe Brusuelas, chief economist at the accounting firm RSM. “The economy accelerated in the fourth quarter of the year. We’re seeing a rational response by firms to meet that demand.”

“The overall picture looks to be one of a still quite strong labor market, and an economy starting 2024 with plenty of forward momentum,” agreed Michael Feroli, chief U.S. economist at JPMorgan in New York.