How to interpret this Friday’s employment report

By Justin Jones On Feb 2, 2023

How to interpret this Friday’s employment report, As the week draws to a close, Friday will bring the first US jobs report of 2023. According to Refinitiv, economists anticipated that January would add 185,000 jobs.

That’s down significantly from the +504,000 jobs added in January 2022 and the +520,000 jobs added in January 2021. According to the Bureau of Labor Statistics, it would also be close to the 183,000 monthly average seen from 2010 through 2019.

The full impacts of the Federal Reserve’s aggressive rate hikes are still to come, Fed Chair Jerome Powell said on Wednesday, even though they have helped make a dent in inflation and slowed economic activity without sharp increases in unemployment.

The disinflation we have observed so far has not come at the expense of a weaker job market, Powell said during a news conference following the Fed’s first monetary policymaking meeting of the year. However, the inflationary process you observe is still in its infancy.

The unemployment rate in the United States hit a 50-year low of 3.5% in December. On Friday, analysts anticipate a rise to 3.6%.

Mass layoffs, spearheaded by the tech industry’s biggest companies, are becoming increasingly common. New data released by Challenger, Gray & Christmas on Thursday morning shows a sharp increase in layoff announcements from December (43,651) to January (102,943).

However, those increases in reductions still need to be universal. The number of people filing for unemployment benefits each week decreased for the fourth time in five weeks, to an all-time low of 183,000, according to figures issued by the Labor Department on Thursday.

ZipRecruiter senior economist Julia Pollak said, “It’s not obvious if what we’re seeing is a welcome, healthy rebalancing of the labor market — or a more concerning pause.”

Pollak and other economists will look at more than just the headline measures of payroll additions, unemployment, and average hourly earnings when the January employment data is issued on Friday morning.

Standard workweek length

According to BLS statistics, the typical workweek for all workers in December was 34.3 hours.

When workers were scarce, and other employees were compelled to pick up the slack and the extra shifts, the average workweek swelled to 35 hours in January 2021.

In prosperous times, a typical workday lasts between 34.3 and 34.6 hours, but “somehow it’s slowed all the way down to the bottom end of that range,” she added. “If it keeps getting worse, it could mean that demand for labor is decreasing.”

When demand drops, she continued, hiring stops, and layoffs and job losses typically follow.

Quick fixes

Companies have depended more on temporary workers and employment firms since the economy has recovered from the pandemic. At the outbreak’s onset, 2.9 million people were working in the industry; by April 2020, that number had dropped to 1.9 million. By July 2022, it had risen to 3.56 million, but it had steadily fallen.

Pollak said the recent decrease in temporary staffing was primarily due to increased permanent hiring within companies. However, I consider it a red flag if the number drops below 3 million.

According to Sarah House, a senior economist at Wells Fargo, temporary and contract hiring can show where organizations make marginal increases or decrease in headcount.

“The fact that we see that paring down shows that the demanded background is starting to soften,” House said. “Perhaps they just don’t see the necessity to hire and expand as they did previously.”

Activity in the Labor Market

The Fed has repeatedly mentioned the gap between labor demand and supply as a possible stumbling block in reducing inflation. Fed officials have acknowledged that wages aren’t a significant factor in inflation. Still, they have voiced concern that a low participation rate and the mismatch between the supply and demand for workers could lead to wage increases and, in turn, higher prices.

In December, the labor force participation rate rose by 0.2 percentage points to 62.3%. The percentage of the population that was either employed or actively seeking employment fluctuated between 62.1% and 62.4% for all of 2022, even though it had fallen for three consecutive months before that.

According to figures released on Wednesday, this chasm widened in December, when there were 11.01 million job opportunities or 1.9 jobs for every unemployed individual.

According to Morning Consult’s senior economist, “Long Covid is quite real, and there is a substantial portion of the population who continue to suffer health consequences associated with Covid that are keeping them from being able to work,” he added. Also, many people have retired early, immigration is lower than before the pandemic, and childcare is still an issue.

Aside from that, he noted, there may also be an “information asymmetry” due to the ongoing demographic shifts caused by the retirement of Baby Boomers.

He said, “There are folks outside the job market who aren’t working, and they just simply don’t know how needed they are right now.” Also, that results from some distance. A lot has changed in the last two or three years, and convincing individuals that their talents are in demand will be challenging.

At 8:30 a.m. ET on Friday, the government will release its monthly employment report.