Submitted by Uric Dufrene, Ph.D., Interim Executive Vice Chancellor for Academic Affairs, Sanders Chair in Business, Indiana University Southeast
–January U.S. job growth surprises everyone
The BLS released the final monthly report on metropolitan area employment and unemployment and the results show strong job growth for the metro region. Louisville gained approximately 21,000 jobs over 2022, and this represents a 3% change over the year and is the highest percent change for all metro areas in Kentucky. As a comparison, Indiana saw a 1.6% change in payrolls over the year, and Kentucky observed a 2.3% change in jobs. The metro area unemployment rate declined to 2.7%, compared to 3.3% last year, and down from the November rate of 3.1%.
The nation’s economy continues to see challenges with the growth of the labor force and the availability of workers. While Louisville did see an overall increase in the labor force of about 5,000, this is sluggish compared to historical changes. The tightness of the local labor market can be seen by the number of unemployed in the metro region, about 18,000. This is compared to 23,000 unemployed last year. So, the labor force saw a small increase over the year, and the number of unemployed declined. Even though the overall economy is slowing down, the labor market remains tight. The number of unemployed in the region, relative to the size of the labor force, is the lowest in the past 30 years, and perhaps in the history of the series. Nationally, job openings increased last month by about 700,000, taking the total openings back up to 11 million. The openings-to-unemployed ratio is back up to about 2. Unemployment claims also remain at very low numbers, with the latest falling close to 180,000.
This year marks perhaps the greatest consensus for a recession. Certain indicators point to a slowdown and bond market indicators like the inverted yield curve suggest slower growth or a recession. Slower growth and softer price pressures, as evidenced by a decelerating Consumer Price Index (CPI), PCE (Personal Consumption Expenditures) Deflator, and ECI (Employment Cost Index) brought the Fed to smaller increases in the Fed Funds rate by only 25 basis points. This marks a decline from the previous meeting of 50 basis points, and 75 basis points through 2022.
If there is slower growth in the cards, this was not obvious in the last national payrolls report. The BLS released the first Friday of the month payrolls report and it showed a whopping 517,000 jobs were added in the month of January. The U.S. unemployment rate declined to 3.4%, and both the labor force and labor force participation rate saw gains. A key piece of information in the report was the change in average hourly earnings, which declined to 4.4% for the year, from 4.8% the prior month. The combination of payroll growth and decelerating hourly earnings is a goldilocks scenario for The Fed.
While this was a very strong payrolls report, other indicators on the economy continue to point to an overall slowdown. That slowdown scenario was pushed back with the last jobs report, perhaps until next year. That kind of payroll growth, along with historic low unemployment rates, is not the number we see with a recession. Prior to last Friday’s jobs report, there was a chance of a pause in Fed interest rate increases. That is just about out the window now. We can expect another quarter point increase at the next FOMC meeting, and then perhaps a
pause. Upcoming reports on inflation will have to show additional deceleration from the last few months to change the market’s perception of prospective rate increases. The next few months of data will be telling.