The American labor market remained red hot in January and that strength will stimulate a discussion of faster interest rate hikes by the Federal Reserve at its March meeting.
The U.S. economy is quickly approaching full employment and wages are rising at a pace not seen in a generation.
The net increase of 467,000 in total employment on the back of a significant upward revision to the December estimate, from a gain of 199,000 to 510,000, affirms what the household survey has implied for the past two months: The U.S. economy is quickly approaching full employment and wages are rising at a pace not seen in a generation.
While the unemployment rate increased from 3.9% to 4%, according to Labor Department data released on Friday, it did so for a virtuous reason: People are re-entering the workforce.
The U.S. household survey found that 1.39 million individuals re-entered the workforce in January, following the 684,000 who did so in November and December of last year.
More than two million people have re-entered the labor market over the past two months, which is indicative of just how strong the underlying economy is.
Average hourly earnings increased notably, rising by 0.7% on the month and by 5.7% on a year-ago basis amid strong corporate profits. Given the fact that corporate profits continued to rise at a strong clip even as wages quickly increased tends to imply that the American economy is in a productivity boom that will dampen some of the inflationary pressures. That rise in productivity strongly implies that the economy will be able to absorb rate hikes in a better fashion than is acknowledged.
Benchmark revision
The benchmark revision to the top-line establishment survey was behind the significant changes in the data. That revision resulted in the labor force participation rate of 62.2% as an additional 374,000 people were at work through last March. Last year alone, the benchmark revision added 217,000 workers to the tally.
Before the report, the data indicated that the total level of employment was 2.8 million below pre-pandemic levels. Following that benchmark revision, there are now 157.2 million people working compared to the pre-pandemic high of 158.9 million which implies a shortfall of about 1.7 million workers. The employment picture looks quite a bit different compared to before the benchmark revision.
The Bureau of Labor Statistics explained its benchmark revision process: “As part of the benchmark process, the seasonal adjustment models are also updated. These models remove normal seasonal fluctuations—such as regular employment changes due to major holidays— from the data series, making it easier to observe cyclical and other economic trends. Now that there are more monthly observations related to the historically large job losses and gains seen in the pandemic driven recession and recovery, the models can better distinguish normal seasonal movements from underlying trends. As a result, some large revisions to seasonally adjusted data occurred with the updated models; however, these monthly changes mostly offset each other. For example, the over-the-month employment change for November and December 2021 combined is 709,000 higher than previously reported, while the over-the-month employment change for June and July 2021 combined is 807,000 lower. Overall, the 2021 over-the-year change is 217,000 higher than previously reported.”
The data
Employment gains were skewed toward the service sector with 132,000 jobs added in trade and transport, 151,000 in leisure and hospitality and 86,000 in business services. Retail trade had a gain of 61,000, the education and health sector increased by 29,000, and temp workers increased by 26,000. The financial sector had a net increase in employment of 9,000.
The higher-paying goods-producing sector did not have strong gains on the month, with only 4,000 jobs created in January. There were 13,000 manufacturing jobs added on the month while there was a decline of 5,000 in the construction sector. Government jobs increased by 23,000, with all of the gains coming at the state and local level.
Perhaps most encouraging: Those working part time because of economic reasons declined to 3.7 million, well below the long-term trend of 5.4 million, which is indicative of the labor market’s strength.
