Understand how the job market shows strength in the US as the economy slows down

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The American economy surprised expectations by creating a million jobs in January. A consensus poll of 81 economists expected job gains to come in at around 185,000, according to Refinitiv.

After 11 months of aggressive Federal Reserve rate hikes, experts naturally expected job gains in the economy to slow as higher borrowing costs seep into the economy, slowing investment and growth. and pressuring companies to reduce spending and hiring.

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And yet, while it seems impossible, the job market is somehow getting tighter, said Rucha Vankudre, senior economist at business analytics firm Lightcast.

“I think virtually every labor economist in the country is shocked,” Vankudre said on Friday during a webinar following the release of the jobs report. I think the question on everyone’s mind is, ‘How can the job market get stronger and stronger and how can this continue to happen while at the same time seeing prices go down?

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Rather than lend credence to what was once a bubbly belief in a soft landing, Friday’s jobs report only seems to raise more questions about not just the state of the economy, but also the Federal Reserve’s attempts to rein in high inflation. .

Where does that leave the Fed?

On Wednesday, the Fed concluded its first policy-making meeting of 2023 by giving the green light to a quarter-point hike in interest rates – the lowest since March – as a reflection of progress in its fight to bring inflation down. .

The more moderate rise came despite a warmer-than-expected report from the December Job Openings and Labor Turnover Survey (JOLTS), which showed job openings grew to more than 11 million, or 1. 9 jobs available for every job seeker.

Fed officials remain focused on wages and inflation, and are seeing some progress there, said Elizabeth Crofoot, senior economist at Lightcast. Fluctuations are to be expected in any economic data, and it’s (always) important to remember that “one month doesn’t make a trend,” especially for January data, she said.

“I think that [as autoridades do Fed] they’re going to say, ‘Let’s keep an eye on the data,’ and they’re going to stick with it until they see the inflation rate come down,” Crofoot said.

The January jobs report is unlikely to trigger a general shift in what Fed members are thinking or planning to do ahead of this report, Sarah House, a senior economist at Wells Fargo, told the CNN .

“I think it suggests that the job market remains very strong, and there are still a lot of wage pressures coming from that strong job market that the Fed needs to address if they want inflation to get back to 2% sustainably,” House said, noting the target. of the Fed’s inflation rate.

Strong job market in a slowing economy?

The Covid pandemic has been a tremendous shock to global economies, and the US workforce is still showing the effects of historic job losses, sudden shifts in consumer behavior, messed up supply chains, and efforts to return to a state of normality. .

The job recovery since 2021 has been historically robust, with monthly job gains greater than any other on record.

The January jobs report came with additional complexity because it included annual updates to population estimates and revisions to employer survey data.

“Now we know that [2021 e 2022] experienced faster job growth than we previously thought,” University of Michigan economists Betsey Stevenson and Benny Doctor said in a statement on Friday.

“The patterns remain the same: job growth accelerated in the second half of 2021 before slowing down in the first half of 2022 and slowing further in the second half of 2022.”

January reports also bring “seasonal noise,” said Joe Brusuelas, director and chief economist at RSM US.

“I am advising policymakers and customers to ignore the key number [de 517.000]”, he said, noting that it is likely a function of seasonal adjustments and a reflection of swings in hiring activity and traditional cutbacks that occur from mid-December to mid-January.

“That said, even if a downward revision takes 200,000 or more off the top, you’re still sitting around 300,000,” he added.

“The labor market is clearly too robust at the moment to restore price stability; therefore, the Federal Reserve will have to not only raise 25 basis points at the March meeting, but at the May meeting as well,” he predicted.

Does that mean a soft landing is on the Fed’s agenda?

Last summer, Fed Chair Jerome Powell warned that “some pain” (aka rising unemployment) was likely to be felt as a result of the Fed’s broad efforts to fight inflation.

However, Powell did not utter the word “pain” once during his news conference on Wednesday, said Mark Hamrick, senior economic analyst at Bankrate.

“If they were betting money on it, I think Las Vegas punters would be doubling down right now on the soft landing scenario — not to say that’s the base case, per se, but the odds seem to be growing,” Hamrick said.

“In any case, the global economic backdrop has improved over the last few days and weeks – and we’ve had a significant ray of sunshine with this January employment report, including all revisions – but that’s not to say that consumers or businesses should be complacent about it. to a possible risk of recession,” he said.

So, for now, the chances of a soft landing remain unknown. “This is a bumpy and bumpy ride for those who know where it might land,” Crofoot said.

Source: CNN Brasil

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