Another strong jobs report helped curb rising pay
By Joe Higgins, Quest4Quality
- February job creation came in at over 311,000 new hires, slowing the rise in hourly wages.
- Unemployment rose to 3.6% as more workers came back into the marketplace.
- The Fed signaled that interest rates will continue to rise based on this strong showing.
February’s payrolls were up over 311,000, well above Wall Street’s expectations of 226,000. This is the second consecutive month that job gains surprised economists, the big banks and the stock market. Evidently, the past eight interest rate hikes by the Federal Reserve have not taken hold, as the economy is still overheated.
The unemployment rate ticked up from January’s 50-year low of 3.4% to 3.6% in February. Average hourly earnings rose 4.6%, which would be considered inflationary in normal times but this was lower than expected, providing a positive sign for our current cycle.
You might wonder why the unemployment rate would rise to 3.6% when the economy produced another strong month of job gains. The answer is due to rising wages and the availability of jobs in 2023 — more people came back into the job market and kicked up the rate. Hospitals, retail and government were the hottest sectors with the most gains last month.
We had expected a deceleration in February’s employment figures due to the whopping 517,000 jobs created in January. Job growth had been decreasing since last summer but abruptly changed course in January; apparently, the Fed’s efforts to slow our vibrant economy and raise unemployment have largely failed.
Some more good news came out of the February jobs report: the labor force participation rate rose to 62.6%, the highest in three years, representing the economy’s return to pre-pandemic employment levels. An even more important metric is the participation rate for prime-aged Americans, 25 to 55 years old, which rose to 83.1% last month. This is the first step toward reducing the worker shortages that have plagued the country’s small businesses. The growing labor supply helped slow the rise in hourly wages, which were only up 4.6% last month, beating expectations of 4.8%.
However, corporate layoffs were at a two-year high in January as the tech sector goes through an extraordinary period. Microsoft, Apple, Amazon, Alphabet, IBM, SAP, Salesforce, Meta and other tech giants brought on too many employees in response to the pandemic and are now recalibrating for the new normal. Together these businesses laid off about 120,000 workers since the first of the year.
The stock market didn’t respond well to February’s job numbers, as they will likely prompt the Fed to continue raising interest rates. Higher rates plus stubborn inflation increase the risks of a recession, which would hurt corporate profits. While the CPI (Consumer Price Index) shows that inflation has declined from 9.1% in June to 6.4% in January, it is still three times higher than the Fed’s target rate of 2%. This would suggest that it has a long way to go to bring inflation under control, and that we will likely see at least four more rate hikes this year.
If the economy does go into a recession this year, it wasn’t evident in the numbers we get from the U.S. Bureau of Labor Statistics. According to the agency’s reports, initial claims for unemployment benefits on a weekly basis have been under 300,000 all year. This would indicate that aside from the tech sector, corporations have not been downsizing, given the shortage of workers. As corporate HR directors have confirmed, company’s don’t want to lose good employees as new ones are hard to find.
The Bottom Line
This column’s bottom line comes from Fed Chairman Jerome Powell’s recent appearances before Congress. In his first meeting, with the Banking, Housing and Urban Affairs Committee, Powell said the economy remains strong, consumers are out in the market and unemployment stands at record lows. While he believes that the “disinflation process has already begun,” he cautioned that “we are still in the early stages” and asked that everyone have patience, as we “still have a long way to go.”
You can take from this that rising interest rates will be with us throughout 2023 and probably 2024. And that means higher mortgages, a slowdown in housing, lower consumer confidence, less consumer spending and rising unemployment. Powell’s so-called “soft landing” is in jeopardy, as the Fed has a poor track record of taming inflation without triggering a recession.
Joe Higgins is a 44-year veteran of GE and Whirlpool Corp. who brings his executive experience to bear as a business consultant, AVB keynoter and YSN contributor. Visit his website, Quest 4 Quality with Joe, at Q4QwithJoe.com.