February jobs preview: What to expect after January's blowout report
The US economy added more than half a million jobs in January, and unemployment dipped to a level not seen in more than five decades.
January's jobs report was a great surprise. It showed that the US had added over half a million jobs, and that unemployment had fallen to levels not seen for more than 50 years.
Economists insist that they are not anticipating another setback when Friday's February jobs report is released. According to Refinitiv, consensus estimates suggest that job gains will be around 205,000.
"I think most economists were content dismissing the January job data as an anomaly," Aaron Terrazas (Glassdoor's chief economist) told CNN.
Terrazas said that if we receive a second strong job report [on Friday], it will not be an anomaly. "I believe anything above 230,000 to 250,000 job growths will be taken as an indication that the labor market is more resilient to higher lending costs than anyone expected.
He said that higher interest rates would follow.
As the Federal Reserve tries to curb high inflation, it is closely monitoring the US labor market dynamics. Although this is not the cause of the current inflation crisis, Fed officials are concerned that the Fed may be causing inflation by allowing wage negotiations to become more uneven.
The Department of Labor released data Thursday showing that the number of first-time unemployment insurance claims rose to 211,000 last week. This was compared with the week ending March 4.
This is 21,000 more than the previous week's unrevised total total of 190,000. It's the highest weekly total since December last year.
People who have been receiving unemployment benefits for more that one week filed continuing claims. This compared to 1.649 millions the week before. Economists expected 1.659 millions.
Despite the widespread media coverage of the recent layoffs by tech giants, media companies, and the financial sector, the US labor market is still strong despite eight rate increases meant to cool down the economy.
This week, Fed Chair Jerome Powell testified before Congress that the central bank will continue raising its benchmark interest rate until historic inflation is controlled. Although the central bank's actions have slow down business investment and flash-frozen areas of the housing market it has not stopped America from having white-hot jobs.
January is a rare month for labor market data. Terrazas stated that this was especially true this year due to the impact of seasonality factors as well as data adjustments.
Seasonal adjustments are used to smoothen out periodic swings (such holiday season hiring), and to better compare data to trends. The Bureau of Labor Statistics' annual benchmarking process was used to provide more current employment and population data.
Economists believe that January's record-breaking jobs report is not due to seasonality, benchmarking, or the interplay between pandemic-era data. However, they do say that there are likely factors from the tight labor market.
KPMG economist Diane Swonk said that January saw people not lay off their usual number of employees. "January is the largest month for layoffs across all industries; however, even companies that saw a decrease in demand kept their workers.
BLS data show that there was a 2.5-million drop in payrolls on an unadjusted base during January. This is the lowest unadjusted total January since 1995.
Unseasonably warm weather also likely played a role and could very well lead to a balmier-than-expected February jobs report, said Joe Brusuelas, chief economist at RSM, in a note this week.
RSM projects a net increase in total employment of 310,000, and further declines in unemployment to 3.3%.
According to economists at the San Francisco Federal Reserve, weather can affect employment in certain industries, such as construction, mining, natural resources and leisure and hospitality. Warm, sunny weather has a positive effect upon employment.
Brusuelas stated that 'Given February's warm temperatures, there is a chance of another upside surprise in jobs data, just like January's gain of 517,000. Even as the Bureau of Labor Statistics tries for seasonal noise to be corrected,' Brusuelas added. "Even if the January estimate is revised upwards, it will take at least another month for the noise to be corrected and the pace of hiring to be fully understood.
He said that this delay presents a challenge to the Fed, which will hold its policymaking meeting March 21-22.
Latest information on unemployment, job cuts, and labor turnover
According to economists at Lightcast, the latest data on Wednesday's labor turnover from the BLS showed signs of softening. However, it is not enough to cause a change in Fed's approach.
According to the January Job Openings and Labor Turnover Survey, while there were fewer available jobs, hires increased, and layoffs increased, quits decreased.
Layla O'Kane (Lightcast senior economist), stated that some of the intense periods of openings, churn, and volatility that we've been witnessing might be decreasing. This was during a post JOLTS webinar on Wednesday.
Construction saw a 49.2% drop in job openings compared to December. Bledi Taska, chief economist at Lightcast, said that the decline could indicate that a sector in difficult times is finding more workers.
The sector is subject to a lot volatility, with a 40% increase in construction job openings in December. However, economists expect that construction employment will eventually decline under the pressure of higher interest rates. According to the JOLTS report, layoffs increased only slightly in January. Hiring and quitting also increased.
Separately, data from Thursday morning revealed that US employers had announced 77.770 job cuts in February according to a report by global outplacement and coach firm Challenger Gray & Christmas.
Although February's total is lower than January's 102 943 announced cuts, it is more than four times as many as those announced in February 2021. It is also the highest monthly total since 2009.
Andrew Challenger, senior vice president of the firm, stated that it is the first time in over a decade that Challenger has experienced reductions in any track industry. The technology sector continues to see the majority of the cuts.
Tech firms have been criticized for mass layoffs after they gained weight and flew high during the pandemic. However, economists warn that these losses are not indicative of the wider situation.
O'Kane stated that 'we are still not seeing layoffs ripple into other parts of the economy.'
Julia Pollak, ZipRecruiter's chief economist, stated that tech-heavy sectors like software publishing, computer system design, and other are continuing to grow.
She stated that tech layoffs are not only being compensated by economic strength, but they are also not showing up in tech-related data.