The economic tailwind that has supported an average increase of 3.1% in household consumption since 2023 continued into January as robust demand for labor resulted in a 143,000 increase in total employment and an unemployment rate of 4%.
The January jobs report, released on Friday, shows a resilient American economy at full employment that, after accounting for the population adjustment in the Bureau of Labor Statistics household survey, has an additional 2.23 million workers, mostly from immigration. These revisions have implications for the inflation and policy outlook.
The size of the civilian labor force after the revisions stands at 170.74 million workers and there are 163.89 million people working. The labor force participation rate of men in their prime working years of 25 to 54 is 89.4%; for women, it is 77.7%.
Revisions to the estimates for November and December resulted in an upward revision of 100,000 jobs over those two months in addition to the 143,000 jobs created in January. For this reason, the report looks much stronger once one digs beneath the headline.
Average hourly earnings increased by 0.5% in January and were up by 4.1% from a year ago as wage growth remained rock solid. These gains will support continued robust household spending.
Benchmark and population adjustment
The benchmark revision to the establishment survey, which is used to estimate top-line monthly job growth, and the population adjustments to the household survey, which is used to calculate the unemployment rate, provide quite a bit of added information.
The benchmark revision resulted in a net decline of 589,000 jobs, which was far smaller than the preliminary estimate of the benchmark revision.
The average monthly gain in employment was revised down from 186,000 to 166,000, which is above the 100,000 to 150,000 positions needed to keep employment conditions stable.
Revisions to the household survey illustrated a net increase of 2.23 million in the total population of workers, which strongly implies a larger pool of labor than previously thought.
This data strongly implies that there was a greater disinflationary impulse that coursed through the economy in 2023 and 2024 through the wage channel, which is the best news on possible further rate cuts than has been observed in some time.
Policy implications
The report also sheds a more positive light on the Federal Reserve’s much-maligned 50 basis-point rate last September and will provide sustenance for the doves on the Federal Open Market Committee who believe the policy rate remains restrictive and see room for more rate cuts.
That decision will in part be determined by the direction of growth, inflation and the impact of trade and immigration policies.
The data
Total private service employment increased by 111,000 with trade and transport employment advancing by 38,000, information by 2,000, financial by 7,000, and private education and health by 61,000.
The government sector added 32,000 jobs with 9,000 added by the federal government. Manufacturing employment increased by 3,000 while hiring by goods-producing employers was flat on the month.
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Leisure and hospitality declined by 3,000 positions, professional and business services fell by 11,000 and temporary help dropped by 12,000.
Total private hours worked eased to 34.1%, a decline of 0.3% on the month. The labor force changed by 2.19 million and the household employment changed by 2.234 million due to the Bureau of Labor Statistics revisions.
The labor force participation rate increased to 62.6% and the employment-to-population ratio increased to 60.1% while the median duration of unemployment remained at 10.4 weeks.
The takeaway
The U.S. labor market remains strong and, based on the population adjustments made to the household survey, implies a larger pool of labor and less inflationary pressures from wages than was understood over the past two years.
Possible significant changes to trade and immigration policies imply a slower pace of monthly job growth ahead for what will be closer to 100,000 than 200,000.
This easing will most likely take place as the unemployment rate stands at 4%. which is a good approximation of full employment as we are likely ever to observe.
