A recent wave of surprisingly solid economic data reveals that the U.S. economy is in a far stronger position than most economists expected.
Friday’s stunning jobs report, coupled with a surprising jump in job openings, has forced experts to recalibrate their expectations for an economy being slowed by the Federal Reserve’s interest rate hikes.
Here’s what we learned about the U.S. economy over the past week:
Companies are still eager to hire
The U.S. added 517,000 jobs in January, blowing away analyst projections, while the unemployment rate dipped to 3.4 percent, the lowest in 54 years. Economists had expected unemployment to rise.
Several sectors that had been seeing an apparent slowdown, including retail and construction, added jobs at a faster rate than last year’s monthly average. The average workweek totaled 34.7 hours, the highest since March 2022, indicating massive demand for workers.
That means the nation clearly isn’t in a recession, despite the Federal Reserve’s efforts to weaken the labor market by hiking employers’ borrowing costs.
“For now, it’s a good sign that the Fed hasn’t broken the economy yet. The best-case scenario is a soft landing, and it’s still in play,” Callie Cox, U.S. Investment Analyst at eToro, said in a note.
In another surprising figure, Labor Department data released Wednesday showed that the U.S. had a near-record 11 million job openings at the end of December, up from 10.4 million the month prior. Economists expected openings to fall on a month-to-month basis.
The shortfall of workers, driven in part by 2 million early retirements during the pandemic, boosts workers’ leverage over wages but also reduces the supply of certain goods and services, leading to higher prices.
Lisa Lighter, 52, told The Hill she struggles to find workers for her small business, A Day In Our Shoes, which helps Philadelphia-area parents secure critical services for their disabled children. The labor shortage forces countless parents with a disabled child who go without those services, Lighter said.
“I work long hours myself because finding qualified help to do my administrative work is challenging. Many never even return emails, and I pay above market rate,” she said.
Friday’s booming jobs report comes with caveats. Economists expect the jobs number to be revised down because companies added fewer holiday employees this year and the U.S. experienced an unusually warm January. The Bureau of Labor Statistics usually accounts for a rush of post-holiday layoffs and lower economic activity during a cold but uneventful month by adjusting January jobs gains higher.
“The BLS jobs report for January was VERY strong. So strong, I don’t believe it. The BLS is likely having measurement issues. Most likely, difficulty seasonally adjusting the data, which is especially important in January,” Moody’s chief economist Mark Zandi wrote on Twitter Friday.
Layoffs are lower than the headlines make it seem
Some of the nation’s largest and most well-known companies, including Google, Microsoft and FedEx, announced mass layoffs in January, fueling recession fears.
But the data shows that most companies aren’t letting workers go.
The number of Americans filing unemployment claims dropped to a nine-month low last week, according to Labor Department data released Thursday. That’s an indicator that the economy is still growing amid the highly publicized job reductions.
The persistent shortfall of workers means that those who are laid off can typically find employment elsewhere, and quickly.
A survey from tech recruiting and staffing firm Andiamo found that 74 percent of tech workers who were laid off between September and November have already landed new jobs. Thirty percent of those fired workers jumped over to new industries such as finance and media.
“Despite the large layoffs and firings in the tech sector over the past year, the data strongly implies that these workers with in-demand skills are quickly finding employment,” Joe Brusuelas, chief economist at auditing firm RSM, said in a note.
Fed rate hikes are making a serious dent on inflation
Federal Reserve Chairman Jerome Powell can finally exhale.
After six straight months of declines in both the consumer price index and personal consumption expenditures (PCE) price index — the two primary ways of tracking inflation — Fed officials are willing to acknowledge that their rate hikes are working.
“We actually see disinflation in the goods sector,” Powell said Wednesday, after the Fed issued its smallest interest rate hike since March 2021.
“We note that when we say inflation is coming down that this is good,” he continued.
Powell’s remarks may seem like little more than a basic observation. But his willingness to acknowledge progress against inflation — however slight — is a sign that the Fed feels increasingly confident in its fight to bring down price growth.
The Fed has been reluctant to declare victory with the PCE price index still up 5 percent on the year in December, well above the Fed’s annual inflation target of 2 percent but down from a peak of 7 percent in June.
Powell added that while prices for goods have fallen steadily, prices for basic services are still rising and may continue to do so as long as the labor market holds strong.
The staggering January gain of 517,000 jobs might be a cause for concern for the Fed, even though wage growth continued to slow down. While Fed officials are optimistic they can quash inflation without derailing the job market, they could face pressure to keep cranking up rates.
“If the central bank thinks that the low unemployment rate will necessarily push up wage growth and inflation moving forward, this strong report may darken the economic outlook. But if instead, Chair Powell and colleagues are heartened by tempering wage growth, then the odds that the economy can avoid a recession increase,” wrote Nick Bunker, head of economic research at Indeed Hiring Lab, in a Friday analysis.