Let’s first state the facts regarding our country’s wonderful week in labor data.
- Job openings are over 11,000,000
- Jobless claims are under 200,000.
- The unemployment rate in America is 3.4%.
When we look at the history of U.S. economics, this week is one for the record books
As someone who professed early in the Covid-19 recovery that we would see 10,000,000 job openings — and the labor dynamics are much different now than what we saw in 2008 — it’s Van Gogh art week when I see all the data lines so positive this week. To have job openings this high, and jobless claims this low, with a 3.4% unemployment rate, it makes me smile like no other.
Now, on to the jobs report, which had some good news on the inflation front.
January jobs report
“Total nonfarm payroll employment rose by 517,000 in January, and the unemployment rate changed little at 3.4 percent, the U.S. Bureau of Labor Statistics reported today,” according to according to data released Friday by the Bureau of Labor Statistics. “Job growth was widespread, led by gains in leisure and hospitality, professional and business services, and health care. Employment also increased in government, partially reflecting workers’ return from a strike.”
If the jobs report came in lower than anticipated, bond yields would have most likely fallen, as wage growth is cooling off. The 10-year yield shot higher after the jobs report, even though wage growth is cooling down, which is what the Fed wants to see, as bond traders took the excellent data and sold off bonds.
However, I love the trend of the growth rate of inflation falling — and that the labor market is still solid. And, as I have discussed for some time, we have struggled to break below 3.42% and head lower.
So far, we are just trending around these levels. Mortgage rates did break under 6% yesterday for the first time in a while, only to retrace 0.20% basis points higher from 5.99% to 6.19%.
This is a breakdown of the jobs created this month. I would only put a little weight on any one single job report, and things will return to the average growth trend. However, it’s a solid report on most sectors of the economy.
I do expect us to get back to trend growth, and over time, job growth will slow, as the slowdown in population growth limits us to a degree. We have to remember that getting all the jobs back lost to Covid-19 is one thing, but there is the make-up demand in labor needed, which was time lost due to the brief recession.
Here’s a breakdown of the unemployment rate tied to the education level for those age 25 and older.
- Less than a high school diploma: 4.5% (previously 5.0%)
- High school graduate and no college: 3.7%
- Some college or associate degree: 2.9%
- Bachelor’s degree or higher: 2.0%
Traditionally, those with less than a high education have the highest unemployment rates during a recession and expansion. I always stress that a tight labor market is a good thing, and we want low unemployment rates for every group — not just college graduates.
Wage growth cooling down
On the labor front, there was some excellent news this week for those looking for lower rates. Both the employment cost index and the average hourly wage growth data in today’s job report showed a cooling down in these data lines.
If these two data lines were booming higher, the bond market might have a different take on the economy. However, we don’t see the wage spiral that many people feared.
The noticeable downward trend on wages in today’s jobs report is a big reason why the 10-year yield is not above 4.25% and mortgage rates are near 8%. The bond market knew the wage spiral premise wasn’t happening.
Some believe that wages would spiral out of control toward the end of 2022 — and that the only way to cool down wage growth is to destroy the economy and create higher unemployment. Sorry, Charlie. That isn’t happening. Wage growth is cooling off with a tighter labor market.
The Federal Reserve has made it key to try to cool down wage growth because people making more money is a bad thing for inflation. They believe the best way to do this is to create more pain, as they say, in the economy.
I am not a big fan of this premise, and what happens in a pandemic typically doesn’t stay years after we are done with the pandemic. The labor market is fine. Wage growth slows, even with high job openings, low jobless claims, and 3.4% unemployment. You don’t need to crash the economy to bring inflation down after a global pandemic.
A solid report and week
While I don’t believe we are starting a new trend of 500,000+ job gains per month, today’s job report surprised many, myself included. I am a big labor market guy who tells people we will have 10,000,000 job openings in this recovery, and we are at 11,000,000 this month. I was shocked at how large this print was.
We do have two to three reports that come in light, and a few reports that beat estimates, but this is a Godzilla beat. I caution people at this expansion stage to follow jobless claims data, which is still under 200,000. I don’t even have my labor Fed pivot until the four-week moving average hits 323,000, and our 4-week moving average is 191,750.
The labor market is fine, and wage growth is slowing down, so we don’t need to create a recession to bring down inflation. We just need more time and supply. The best way to deal with inflation is always with supply because demand destruction tends to hit future supply production.
