Consensus forecasts expected were surprised with the 517,000 jobs added to the labor market when no more than 200,000 additional jobs were expected. Analysts had predicted a job creation slowdown after big Tech firms layoffs. Health care, leisure and hospitality sectors are the major contributors to these job additions. Unemployment fell to 3.4%, lowest level in 54 years, and wages rose 0.3% in January. Despite interest rates hike, Fed Chairman Jerome Powell states that inflation could slow down and the labor market remain healthy. To back Powell's positivity, wage growth in the service sector is decelerating, showing that other components of inflation are cooling down.
The labor market as a whole is coming back to balance even though it is tight right now. Most people being let go find jobs within a month, meaning that many of them don't even show up on the government's monthly labor data as they have severance packages.
So, how will this "balance" in the labor market be taken by economists? What other components of the economy will help the Fed fight against inflation?
Source: https://www.usnews.com/news/economy/articles/2023-02-03/economy-adds-517-000-jobs-in-january-more-than-double-estimates
The fact that the actual numbers more than doubled what was predicted is very interesting. The article mentions that perhaps the return of striking workers may have contributed to the number being larger than what was expected, but considering the actual number more than doubled the predicted estimate, I doubt the discrepency can be soley from returning workers from strike. Its also interesting to see how the tech industry is still experiencing layoffs while other sectors of the economy are starting to recover
ReplyDeleteLooking back now Powell's predictions don't hold up as heavily now that we know that the PCE increased. It seems that inflation is still here to stay as of now and that interest rates are probably going to hold up for a bit. It does seem that a tight labor market is a good thing right now so hopefully we can see this inflation begin to cool down.
ReplyDeleteThe fed can combat inflation with the help of monetary and fiscal policies. For instance, the central bank can raise interest rates to discourage borrowing and spending, which can also lower inflation, while the government can raise taxes or cut spending to reduce demand and lower inflation.
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