The big news of the week was that the economy added 517K jobs in January, significantly ahead of the 188K consensus expectation. Alongside the robust payroll gain, the unemployment rate fell to 3.4% during the month, the lowest rate in 53 years. The monthly jobs gain comes with the usual caveats that monthly gains can be highly volatile, vulnerable to seasonal adjustment noise and subject to large revisions. That said, the jump in jobs occurred as labor force participation improved and wage growth moderated, both of which are positive signs of a labor market moving into better balance. Average hourly earnings cooled to 0.3%, a monthly pace that was in line with consensus estimates. That noted, wage growth has yet to return to a pace consistent with 2% inflation. All told, January's employment report adds to the evidence that a recession is still a ways off and raises the probability the FOMC will move forward with another 25 bps rate hike at its next meeting in March.
The deceleration in hourly earnings helps corroborate a slowdown in other wage growth measures. On Tuesday morning, the Employment Cost Index (ECI) for Q4-2022 was released. The ECI is a comprehensive measure of wage growth and is closely monitored by the Fed to shed light on the labor market and inflation. The ECI rose 1.0% in Q4, the third straight quarterly moderation and a pace slower than market expectations. In the Fed’s view, slower labor cost growth is required for disinflation in the labor-intensive service sector, where price pressures remain elevated even as goods prices move down.
Overall, the slower increase in the ECI suggests that wage growth is easing without a material deterioration in the labor market. The softer ECI gain was likely well-received by Committee members when the FOMC meeting commenced on Tuesday morning. At the conclusion of the meeting, the FOMC raised the fed funds rate target range by 25 bps to 4.50%-4.75%. The hike was widely expected, but comments provided by Fed Chair Powell at the press conference were more of a surprise. For more on the FOMC rate decision, please see the Interest Rate Watch.
The Fed will very likely become even more data dependent as it begins to fine-tune monetary policy. Another indicator that the Fed has been monitoring closely, the Job Openings and Labor Turnover Survey (JOLTS), was released on Wednesday morning. The December JOLTS revealed that the count of openings unexpectedly jumped to 11.0 million over the month. Fed Chair Powell has frequently cited the elevated ratio of job openings relative to unemployed, which rose to 1.9 during the month, as evidence of an imbalanced labor market. Seasonal factors were likely behind December's jump in total openings. What's more, the underlying details of the survey suggest some cooling in labor market conditions. Quits fell slightly and layoffs increased a touch, indicating less tightness in the labor market and presaging slower labor cost growth on the horizon.
This Week's State Of The Economy - What Is Ahead? - 10 March 2023
Wells Fargo Economics & Financial Report / Mar 14, 2023
Financial markets were looking for validation that January\'s unexpected strength was not a fluke and that the downward slide in economic momentum experienced late last year had stabilized.
This Week's State Of The Economy - What Is Ahead? - 02 April 2021
Wells Fargo Economics & Financial Report / Apr 08, 2021
Increased vaccinations and an improving public health position led to an easing of restrictions and pickup in activity across the country in March.
Rising COVID-19 Cases Put A Damper On Re-openings
Wells Fargo Economics & Financial Report / Jun 27, 2020
The rising number of COVID-19 infections gained momentum this week, with most of the rise occurring in the South and West. The rise in infections is larger than can be explained by increased testing alone and is slowing re-openings.
The Regional Breakdown Of A Labor Market In Meltdown
Wells Fargo Economics & Financial Report / May 26, 2020
Employment fell in all 50 states and 43 states saw their unemployment rate rise to a record in April. The damage is already hard to fathom-a 28% unemployment rate in Nevada and still another month of job losses ahead.
This Week's State Of The Economy - What Is Ahead? - 14 April 2023
Wells Fargo Economics & Financial Report / Apr 20, 2023
In March retail sales fell 1.0%, manufacturing production slipped 0.5% and the consumer price index rose a modest 0.1%.
This Week's State Of The Economy - What Is Ahead? - 11 March 2022
Wells Fargo Economics & Financial Report / Mar 16, 2022
Russia\'s invasion of Ukraine continues to consume nearly all media attention and has created a level of volatility that is not yet reflected in the data released this week.
This Week's State Of The Economy - What Is Ahead? - 19 May 2023
Wells Fargo Economics & Financial Report / May 23, 2023
Economic data continue to suggest the U.S. economy is only gradually losing momentum. Consumers continue to spend, and industrial and housing activity are seeing some stabilization.
This Week's State Of The Economy - What Is Ahead? - 27 October 2023
Wells Fargo Economics & Financial Report / Nov 02, 2023
The U.S. economy expanded at a stronger-than-expected pace in Q3, with real GDP increasing at a robust 4.9% annualized rate.
This Week's State Of The Economy - What Is Ahead? - 20 November 2020
Wells Fargo Economics & Financial Report / Nov 24, 2020
The international economic news over the past week has been somewhat mixed. On the positive side, China’s October data showed ongoing growth in manufacturing and firming retail and service sector activity.
This Week's State Of The Economy - What Is Ahead? - 18 March 2022
Wells Fargo Economics & Financial Report / Mar 21, 2022
it was a big week for economic news as the Astros allowed the TWINS of all teams to sign Carlos Correa to the type of short-term deal that the Astros have historically been open to.
