The U.S. economy could already be heading past a soft landing into a new virtuous cycle of growth.
That’s the message of the January Bureau of Labor Statistics’ labor market report released last Friday. It showed that the nation’s employers added a stunning 517,000 jobs, twice as much as the previous month, three times above market forecasts, and the most since last July.
In addition, the January job gains are way above an average of 401,000 in 2022, helping push the unemployment rate to 3.4%, the lowest in 50 years.
“The report today announcing 517,000 jobs added in January once again shows the staying power of the jobs market,” Bill Armstrong, President of Recruiting at Safeguard Global, told International Business Times.
“The number of job openings, which also increased significantly last month, leaves us with nearly two open jobs for every candidate. While we have seen many reported layoffs in the tech industry, other segments continue to thrive. For example, we continue to see much activity in healthcare and hospitality. Despite the economic uncertainty, the competition for hiring talented workers remains strong.”
Then the stretch of the work week went to 36 hours as scarce workers were forced to take extra shifts.
“In the December report, working hours appeared to have fallen for six consecutive months, all the way down to 34.3—the bottom end of the ‘good’ range,” Julia Pollak, a chief economist at ZipRecruiter, told IBT. “Now, past data has been revised upwards, but the average work week measured 34.7 hours in January, above the normal range. So it now signals high labor demand, not slackening demand.”
These numbers that exceed the most bullish forecasts by a wide margin suggest that the U.S. economy is gaining momentum, and that’s good news for the pace of the economic recovery.
Creating additional jobs means more income, and higher income means more spending, which means higher growth and spending. That’s what economists call the “virtuous cycle” of growth.
“The vast majority of industries added jobs in January, with the diffusion index (a measure of the breadth of gains) coming in at an exceptionally high 69.0,” added Pollack. “(In good times when the economy is expanding, numbers between around 52 and 57 are typical).
Moreover, roughly one-fourth of the job gains were in the leisure and hospitality industry, which has been benefiting from the full release of the U.S. economy from the pandemic constraints.
“While the rate of job growth was faster than predicted, the source of those gains (hiring in the tourism and medical care sectors) is not surprising,” said Dr. Tidemann, an assistant economics professor at Niagara University. “In particular, the pandemic recovery in tourism and hospitality has still not fully made up for 2020 job losses.”
Leisure and hospitality jobs are usually created through the low-skilled labor market, where competitive forces determine wages. And that could explain the subdued 4.4% annual wage rise, as is a slight increase in labor force participation, from 62.3% to 62.4%.
Though the subdued rise in wages may be temporary, it could still prevent the economy from getting into a wage-price spiral, making the new cycle of virtuous growth sustainable.
Still, an unexpectedly hot labor market may change the monetary policy narrative on Wall Street and cool off speculation of the Federal Reserve pulling back or reversing its policy of marginal interest rate hikes in 2023.
“While a hot labor market may offer unwelcome news to the Fed, Chairman Jerome Powell and other Fed members should welcome the continued slowdown in wage growth seen in the jobs report,” said Tidemann.