Labor Market Continues to Exude Resilience
Coming into the week, 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. On balance, this week's indicators supported that notion.
Total nonfarm payrolls increased 311,000 in February, marking the 11th consecutive month payrolls have beaten consensus expectations. Leisure & hospitality led the charge, adding 105K jobs last month. Strong monthly gains were also seen in retail (50K), professional business services (45K), healthcare (44K) and government (46k). In contrast, net hiring losses were reported in information (-25K), manufacturing (-4K) and financial (-1K). The unemployment rate rose to 3.6% in February from 3.4% in January, as the strong 419K increase in the labor force offset a more muted 177K gain in household employment. The labor force participation rate now sits at a fresh cycle high of 62.5%, not too far off the pre-pandemic average of 63.3%. In another encouraging sign for Fed officials, average hourly earnings rose less than expected last month, up just 0.2%. Along with modest downward revisions to December's and January's gains, average hourly earnings growth has slowed to a 3.6% annualized rate—a pace that is getting much closer within the realm of what would be consistent with 2% inflation.
Also released this week, the Job Openings and Labor Turnover Survey (JOLTS) suggested labor demand remained reasonably firm at the start of the year. While job openings fell 3.7% in January to a level of 10.824 million from an upwardly revised December figure, the level remains high, down only 10% from its peak last March and still running about 50% above pre-pandemic levels. The job openings rate (job openings as a percent of total employment plus job openings) fell to 6.5% in January from 6.8% in December, with the ratio of job openings to the number of unemployed slipping slightly to 1.9 from 2.0 in the prior month. Following signs of greater progress last year, the January decline in job openings points to only modest progress in addressing the substantial imbalance between labor demand and supply.
Outside of the labor market, yet still supportive of resilient demand, the trade deficit widened in January as imports and exports both posted strong monthly gains. Exports rebounded 3.4%, marking the first sequential gain in five months, while imports increased 3.0%. While this has been an encouraging start to the year, questions remain over whether these positive trajectories can be maintained. The January trade report puts net exports on track to be a slight negative for GDP growth in the first quarter
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