Economic Update: March 2024

Once again in February we see a divergence between the two surveys in the jobs report – the household survey and the establishment survey – something observed last October and December. The increase in unemployment was countered by strong jobs growth, and strikingly, the two reports also deviate significantly in their estimates of yearly job growth (+/- 2 million), an aberration that has only recently developed. As we’ve noted, we generally place greater weight on the establishment survey due to sample size – but it is a trend to continue to watch.

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While last month’s job gains were robust, remarkably the gains were also spread throughout the labor market. February’s diffusion index – a measure of the breadth of changes in employment across industries – came in at 62.6, the third straight month above 60. Another way to think about it: almost two-thirds of sectors increased employment last month. It’s a positive sign that many industries are increasing their payrolls, but the question remains how long average monthly increases will remain well above the roughly 100,000 needed to keep up with population growth. Gus Faucher, chief economist at PNC Financial Services, predicts monthly job growth to land around 150,000 and for unemployment to exceed 4% by year’s end.

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Some signs of increased labor market slackening include continued wage growth moderation, as average hourly earnings edged up 0.1% last month after gaining 0.5% in January. In conjunction, the decline in temporary help jobs has continued and the average workweek rose only modestly to 34.3 hours from 34.2 hours.

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How can the labor market show signs of cooling and yet remain so vigorous? Immigration, most likely. In recent months the US labor market has been given a hefty assist by the arrival of millions of immigrants, who have helped close severe post-pandemic hiring shortfalls. Elevated levels of immigration now mean that there are now an average of 1.4 job openings for every unemployed worker, down from a ratio of 2.0 last year. In fact, new analysis from the Brookings Institution, shows the immigration influx of the last two years has doubled the number of jobs the US labor market could add per month in 2024 without negatively impacting inflation.

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With immigration supporting the labor market’s ability to absorb increased hiring without overheating, others also credit the impact of work-from-home policies. BlackRock executive Rick Rieder suggests a “dual positive supply shock”: the combination of immigration and workplace flexibility has increased the pool of talent to fill vacancies, helping to contain inflation and enabling “a surge in labor market participation, particularly among prime age female workers.”
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For many highly skilled Americans however, it is not the greatest time to be looking for a job. The Conference Board’s recent Employment Trends Index also showed that jobs are becoming harder to come by, and that only modest job gains are predicted in the last half of 2024. Glassdoor has shared recent insights that job searches are taking longer for people with graduate degrees, noting: “It is a two-track labor market […] for skilled workers in risk-intensive industries, anyone who’s been laid off is having a hard time finding new jobs, whereas if you’re a blue-collar or frontline service worker, it’s still competitive.”

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But despite evidence of slackening, core inflation remains the proverbial thorn in the Fed’s side. Inflation has eased fairly steadily in recent months but has remained stubbornly above its 2% target. And new data from yesterday’s CPI report showed inflation actually sped up slightly in February, increasing 0.4% for the month and 3.2% from a year ago. While the monthly gain was in line with expectations, experts like Robert Frick, corporate economist at Navy Federal Credit Union, note: “Reports like January’s and February’s aren’t going to prompt the Fed to lower rates quickly.”