Friday, February 2, 2024

January jobs report: a very strong report, but with pockets of significant weakness


 - by New Deal democrat

As per usual, the Establishment and Household portions of the jobs report gave somewhat different impressions, complicated by annual revisions to each. In general, not only was January excellent of the Establishment report, but  most months in the past year were revised upward as well. The Household report mainly was “meh,” neither particularly improving nor declining. Finally, aggregate hours and payrolls were a little concerning.

My focus remains on whether jobs gains are most consistent with a “soft landing,” i.e., no further deterioration, or whether deceleration is ongoing; and more specifically: 
  • Whether there is further deceleration in jobs gains compared with the last 6 month average (Needless to say, the answer to this was a resounding “NO!”)
  • Whether the unemployment rate is neutral or decreasing; or whether there is further weakness; (As expected from the information from initial claims, there was no further weakness) and
  • Based on the leading relationship of the quits rate to average hourly earnings, weather YoY wage growth continues to decline slightly (To the contrary, it rebounded).

Here’s my in depth synopsis.

  • 353,000 jobs added. On a YoY basis, jobs rounded to up 1.9%. Due to the annual revisions, this is now tied for the lowest YoY% gain since March 2021. 
  • Both November and December were revised upward, by 9,000 and 117,000 respectively, for a total of 126,000. Almost every month last year, there was a steady drumbeat of downward revisions. This has been all but wiped away by the annual revisions, in which 9 of the last 12 months were revised higher.
  • Private sector jobs increased 317,000. Government jobs increased by 36,000.
  • The alternate, and more volatile measure in the household report, declined by -451,000 before taking into account the annual revisions. After doing so, the month over month change would have been +239,000.  More importantly, the YoY% gain in this report - which avoids issues with seasonal adjustment - declined sharply to +0.6%, the lowest since the pandemic lockdowns.
  • The U3 unemployment rate remained at 3.7%.
  • The U6 underemployment rate increased +0.1% to 7.2%, 0.7% above its low of December 2022.
  • Further out on the spectrum, those who are not in the labor force but want a job now increased 122,000 to 5.793 million, its highest level since September 2022, vs. its post-pandemic low of 4.925 million set last March

Leading employment indicators of a slowdown or recession

These are leading sectors for the economy overall, and help us gauge how much the post-pandemic employment boom is shading towards a downturn.  With one exception, these were positive.:
  • the average manufacturing workweek, one of the 10 components of the Index of Leading Indicators, declined sharply, by another -0.3 hours to 40.0, down -1.5 hours from its February 2022 peak of 41.5 hours, and the lowest level since June 2020.
  • Manufacturing jobs rose 23,000.
  • Within that sector, motor vehicle manufacturing jobs rose 3,100. 
  • Construction jobs increased by 11,000.
  • Residential construction jobs, which are even more leading, rose by 2,500. This is a yet another new post-pandemic high.
  • Goods jobs as a whole rose 11,000 to another new expansion high. These should decline before any recession occurs. After revisions, these are up 1.2% YoY, the lowest growth since early in the pandemic, but which is nevertheless average compared with most of the last 40 years.
  • Temporary jobs, which have generally been declining late 2022, rose by 3,900, and are down about -250,000 since their peak in March 2022.
  • the number of people unemployed for 5 weeks or fewer declined -51,000 to 2,140,000.

Wages of non-managerial workers
  • Average Hourly Earnings for Production and Nonsupervisory Personnel increased $.13, or +0.4%, to $29.66, a YoY gain of +4.8%. The last 3 months have seen the previous deceleration in this metric stop.

Aggregate hours and wages: 
  • the index of aggregate hours worked for non-managerial workers fell -0.2% to the lowest level in 5 months, and after revisions is only up 0.2% YoY, the lowest since March 2021.
  •  the index of aggregate payrolls for non-managerial workers rose 0.2%, and decelerated to being up 5.0% YoY. This is still 1.7% above the most recent YoY inflation rate. In the last 3 months, inflation has only averaged 0.1% monthly, so this may be a positive in real terms as well.

Other significant data:
  • Leisure and hospitality jobs, which were the most hard-hit during the pandemic, rose another 11,000, which is only -75,000, or -0.4% below their pre-pandemic peak.
  • Within the leisure and hospitality sector, food and drink establishments rose 4,600,. This sector has completely recovered from its pandemic downturn. 
  • Professional and business employment increased 74,000. These tend to be well-paying jobs, This series had been declining since last May, but after revisions, the last 2 months have both made new record highs.
  • The employment population ratio increased +0.1% to 60.2%, vs. 61.1% in February 2020.
  • The Labor Force Participation Rate was unchanged at 62.5%, vs. 63.4% in February 2020.


This month’s report was complicated by extensive revisions to the Establishment side, and population adjustments to the Household side. In general, the Establishment numbers were revised downward in the early part of last year, but upward in almost all months ever since. With these revisions, almost all of the monthly deceleration which I discussed monthly last year has disappeared, although it remains on a YoY basis - but the YoY level of growth is presently to 1.9%, which historically has been perfectly normal.

As noted above, almost all of the leading (and coincident) job sectors showed gains, a number to new post-pandemic highs. Nonsupervisory wage gains appear to have leveled off (i.e., have stopped decelerating) on a real, inflation-adjusted basis.

There were some negatives. The manufacturing workweek is practically screaming “recession” in that sector. In fact, this is a decline typical at the bottom of recessions. Additionally, aggregate hours declined, and aggregate real payrolls *may* have stalled. Also, the U6 underemployment rate increased again. This series only has a 30 year history, but during that history, the level of increase we have seen has only happened early in recessions.

Overall, I interpret this as a very strong report, but with pockets of significant weakness.