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? - 27 March 2020
Wells Fargo Economics & Financial Report / Mar 28, 2020
The U.S. surpassed Italy and China with the most confirmed cases of COVID-19. Europe is still the center of the storm, with the total cases in Europe’s five largest economies topping 230,000.
Economic Uncertainty Seems Removed Going Into The New Year 2020
Wells Fargo Economics & Financial Report / Dec 28, 2019
The U.S. economy continues to expand, albeit at a moderate pace. The U.S. Bureau of Economic Analysis reports U.S. gross domestic product (GDP) grew 2.1 percent in Q3/19.
This Week's State Of The Economy - What Is Ahead? - 04 August 2023
Wells Fargo Economics & Financial Report / Aug 09, 2023
Employment growth was broad-based, though reliant on a 87K gain in health care & social assistance. Modest gains from construction, financial activities and hospitality also contributed to private sector job growth.
This Week's State Of The Economy - What Is Ahead? - 03 November 2023
Wells Fargo Economics & Financial Report / Nov 08, 2023
Although payroll growth is easing, the labor market remains relatively tight. The unemployment rate inched up to 3.9% in October, slightly higher than the cycle low of 3.4% first hit in January 2023, but still low compared to historical averages.
This Week's State Of The Economy-What Is Ahead?
Wells Fargo Economics & Financial Report / Aug 03, 2019
How will Fed rates-cut and Trump 10% tariff on $300 Billion Chinese Goods countered by Chinese currency devaluation against Dollar, affect inflation and economic slowdown in US economy?
This Week's State Of The Economy - What Is Ahead? - 22 January 2021
Wells Fargo Economics & Financial Report / Jan 23, 2021
Housing starts jumped 5.8% during December. Single-family starts soared 12%, while multifamily starts dropped 13.6%.
This Week's State Of The Economy - What Is Ahead? - 06 March 2020
Wells Fargo Economics & Financial Report / Mar 07, 2020
An inter-meeting rate cut by the FOMC did little to stem financial market volatility, as the number of confirmed COVID-19 cases continued to climb.
This Week's State Of The Economy - What Is Ahead? - 22 March 2024
Wells Fargo Economics & Financial Report / Mar 25, 2024
During February, existing home sales and housing starts both topped expectations and rose at robust rates. Meanwhile, initial jobless claims have remained subdued so far in March.
This Week's State Of The Economy - What Is Ahead? - 10 June 2022
Wells Fargo Economics & Financial Report / Jun 13, 2022
CPI increases continue to sizzle like this weekend’s temperature, putting consumers in a worse mood than Texas Rangers fans (with their 9.5 games back $500 million middle infield).
This Week's State Of The Economy - What Is Ahead? - 05 April 2024
Wells Fargo Economics & Financial Report / Apr 09, 2024
Nonfarm payrolls expanded 303K in March, surpassing all estimates submitted to Bloomberg. The continued strength in hiring suggests less urgency for policymakers at the Federal Reserve to lower the target range of the fed funds rate.
