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2024 Starts With a Bang

By Mallory Vachon

Once again, job gains blew past expectations in January. We are running out of synonyms to describe the labor market’s performance, and January’s jobs report was no exception.

Job gains totaled 353,000 in January, beating economists’ projections of around 180,000. To put this total in context, 353,000 represents nearly half of the 713,000 annual total forecasted by economists in The Wall Street Journal’s quarterly survey.

Other good news from January’s report was upward revisions to job gains for November and December. We’d grown accustomed to downward revisions recently, so this was a pleasant surprise. Those revisions brought 2023’s total to more than 3 million jobs, the highest since 1999 (excluding the pandemic recovery in 2021 and 2022).

What About Specific Industries?

Despite a labor market that is strong according to all headline numbers, a major theme in this column for the past several months has been the concentration of hiring in just a few industries, with most sectors simply treading water. Well, one month doesn’t make a trend, but January’s jobs report showed broad job growth across industries.

Most notably, there’s professional and business services, which closed out 2023 with several months of job losses. The industry added only 171,000 jobs in 2023, the lowest total for professional and business services in nearly a decade (outside the 2020 pandemic year).

January’s job growth in professional and business brought even better news for recruiters. The temporary employment and staffing subsector added jobs for the first time in nearly two years.

Inflation and Wage Growth

While the labor market has outperformed expectations, there have been a couple of exceptions, especially when it comes to inflation (measured by CPI, or the consumer price index) and wage growth. As for inflation, prices rose by more than expected in January. On an annualized basis, prices for core goods and services rose by 3.6%

Wages grew by 4.5% over the past 12 months, higher than the 4% expected by economists. Increasing wages may sound like a good thing, and they are for workers. However, wage growth exceeding expectations also signals to the Fed that the labor market is just a little too hot, which will make it difficult to combat inflation — it’s quite a conundrum.

Again, one month of data does not make a trend. Inflation has come down but remains above the Fed’s target rate of 2%, and wage growth has outpaced inflation for nearly a year. However, more wage growth and CPI readings like what we saw in January likely mean delayed rate cuts in 2024.

Interest Rates Still a Wildcard

In 2022, inflation reached 40-year highs, driven by supply-chain challenges and increased demand from consumers as wages grew. Inflation, coupled with and spurred on by the hot labor market, led the Fed to raise interest rates at a record pace. The goal of rate hikes was to stall demand, and therefore inflation.

Current interest rates aren’t high by historical standards, but borrowing costs are higher than they’ve been in decades. And that has implications for workers and businesses.

Rising interest rates have also shaken up the housing market, and that impacts workers’ ability to move long distances for new roles, especially those with a low interest rate mortgage. The interest rate for a 30-year fixed rate mortgage has increased from below 3% in early 2021 to nearly 7% today.

For homebuyers with a fixed monthly budget, your money went much farther when buying a house in 2020 or 2021 compared to today. Let’s walk through an example using an online mortgage calculator for a 30-year fixed rate mortgage. Today, if homebuyers have a monthly budget around $3,000 (just over the national average), they could afford a $450,000 house with a 7% interest rate. Compare that to 2021. For the same $3,000 monthly budget, homebuyers could afford a $725,000 house at a 3% interest rate.

The housing market presents a major challenge for recruiters and businesses looking for talent to relocate for new opportunities.

What’s Next?

Inflation, an overheating economy, and global instability (which we haven’t even touched upon in this column), all present potential challenges and uncertainty for the economy. However, it’s important to remember that the U.S. labor market has remained much more resilient than many expected over the past year, and most metrics point to stable growth.

February’s jobs report, released in early March, will provide a lot of insight into what this year could hold in terms of interest rate cuts — or lack thereof. While job gains beating expectations has become the norm, another month of wage growth well-above 4% may indicate to the Fed that the labor market is still too hot.


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