Remarkable, resilient and robust. There is simply no other way to describe the sustained strength in the U.S. labor market that has resulted in an American unemployment rate below 4% for 24 consecutive months for the first time since 1967.
The U.S. economy created 353,000 new jobs in January on the back of an upward revision to 333,000 from 216,000 in December. Those gains came across major sectors, particularly in higher-paying areas, leading to the 0.6% monthly increase in average hourly earnings and a 4.5% annual rise.
All of this resulted in a 3.7% unemployment rate (3.661% when taken out to three decimal points) and a net upward revision in total employment over the past three months of 186,000.
From our perspective, January’s data and the revisions to the previous three months should put the last of the recessionary calls six feet under. Even if one makes the case for a midcycle correction in the economy, it is clear that once firms realized last year that the economy was not going to fall into a recession, they begin hiring again.
The policy implications of the revisions to the establishment survey of employment and the historically low unemployment rate are that the Federal Reserve will be quite patient in its move to reduce its policy rate, which sits between 5.25% and 5.5%.
This data affirms Federal Reserve Chairman Jerome Powell’s note that there will likely be no rate cut in March and we are quite comfortable with our call for a June start date with the chance of a May cut depending on the evolution of the inflation data. We expect that the Fed’s preferred inflation variable, the personal consumption expenditures index, will be at or near 2%, the central bank’s target, by the May meeting.
The data
The increase in employment was robust and broad based. The higher-paying categories included a 74,000 increase in professional business services, 64,000 in trade and transport, 28,000 in goods-producing, 11,000 in construction, 8,000 in financial activities, 112,000 in private education and health care, as well as 36,000 in government. The information sector added 15,000 jobs and retail trade had an increase of 45,000.
Total private hiring increased by 317,000.
Total private hours worked declined by 0.6% even as overtime hours increased by 2.7, while aggregate hours worked declined by 0.3%.
The labor force participation rate held steady at 62.5% while the overall labor force declined by 175,000. median duration of unemployment stands at 9.6 weeks, which implies that if workers lose a job, they can expect to find a new one within two to three months.
For more insights about workforce dynamics and trends, read the RSM US Middle Market Business Index Special Report: Workforce 2024.
The revisions
The Bureau of Labor Statistics made its annual benchmark revision to the establishment survey that is used to estimate the top-line gain in employment.
On a seasonally adjusted basis, total nonfarm employment for March 2023 was revised downward by 266,000. On a not seasonally adjusted basis, the total nonfarm employment level for March 2023 was revised downward by 187,000, or 0.1%. On a non-seasonally adjusted basis, the absolute average benchmark revision over the past 10 years is 0.1%. The over-the-year change in total nonfarm employment for March 2023 was revised from a gain of 4,048,000 to 3,836,000 (seasonally adjusted).
The takeaway
There are now 161.5 million people working amid a historic expansion of work and a low unemployment rate. While the top-line gain may have been supported by difficult seasonal adjustments, the gains in employment are simply remarkable.
We do not anticipate that the benchmark revisions nor strong gains in hiring over the past three months will change the path of monetary policy, and we expect the Fed will make its first rate cut by midyear.
