Economists are eagerly awaiting Friday morning’s employment report, which will provide the first glimpse into how the still-hot job market is holding up in the new year.
The report, set to be released at 8:30 a.m., will highlight the employment situation in the United States for the month of January. It comes on the tail of several consecutive jobs reports that have been more positive than expected, even despite the Federal Reserve hiking interest rates the most aggressively it has in four decades.
STATE OF THE ECONOMY — TAKING HITS AND RUNNING UP DEFICITS
Economists forecast that the economy added about 185,000 jobs last month and that the unemployment rate ticked up slightly to 3.6% from its current 3.5% level. The level of unemployment is tied for the lowest since the 1950s and has consistently surprised economists by staying low over the past years’ worth of monetary tightening.
Should January’s employment numbers come in below expectations, it may signal that the Fed’s rate hikes are finally starting to trickle through the economy and into the labor market — something that would cause the central bank to breathe a sigh of relief, as officials have indicated that some degree of job loss can ease inflationary pressure and shorten the time the Fed will have to keep interest rates elevated.
Chairman of the Federal Reserve Jerome Powell has acknowledged that the labor market should soften given the Fed’s mission to crush inflation. Additionally, this week’s job openings report showed openings unexpectedly rose in December to 11 million. That further complicates the employment situation as Powell has said openings “need” to come down in order for inflation to be tamed
Just this week, though, Powell struck a bit more optimistic tone during a news conference following the Fed’s decision to raise interest rates by a quarter of a percentage point. He acknowledged that recent reports have begun to show inflation “has eased somewhat.”
“I continue to think that there’s a path to getting inflation back down to 2% without a really significant economic decline or a significant increase in unemployment,” Powell said at the news conference, referring to the preferred level of sustained inflation.
Alternatively, if January’s employment report shows job growth was greater than anticipated, it could cause the Fed to view its rate-hiking through a more hawkish lens.
“You’re trying to thread a needle,” said Brett Ryan, senior US economist at Deutsche Bank AG, according to Bloomberg. “If it’s really weak data, then you worry about recession,” he said, adding that if it’s too strong “it implies a more hawkish outlook for the Fed.”
Friday’s report comes a day after the Labor Department reported its latest weekly data on jobless claims. Jobless claims have been declining, suggesting that layoffs are scarce and the labor market is strengthening, not weakening.
The number of new applications for unemployment benefits unexpectedly dropped by 3,000 to 183,000 last week, according to the Thursday report. The numbers bolster the notion that the labor market is still running hot, given that they are more recent data than January’s jobs report will show.
“It remains a conundrum why job losses continue to shrink each week and we can only guess that over 11 million help wanted signs around the country are making companies think twice about letting employees go,” said Chris Rupkey, chief economist at FWDBONDS.
“Labor is scarce,” he added. “Initial claims are the lowest since April last year so those recession clouds out on the horizon the market is betting on are not even clouds anymore, the jobless layoffs data tells us the threatening clouds have completely disappeared.”
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The tight labor market has partially allayed fears about a recession. A couple of months ago a recession — resulting from the rising interest rates — seemed like a near certainty.
While most economists still predict there will be at least a mild recession at some point in the next year, there has been some optimism that Powell might be able to pull off a “soft landing” in which the Fed drives down inflation without sending the economy into the gutter, a prospect that seemed extremely unlikely just a short time ago.
