January Jobs Jolt

Special Guests: Gordon Gray

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This week on Facing the Future, we looked at the latest economic numbers with a focus on jobs, wages, and interest rates. Our guest was Gordon Gray, Vice President for Economic Policy at the American Action Forum. Concord Coalition policy director Tori Gorman and chief economist Steve Robinson joined the conversation

To the surprise of many economists, the January jobs report released by the Bureau of Labor Statistics (BLS) on February 2 showed a very robust gain of 353,000 jobs – up from 333,000 in December. The unemployment rate remained at 3.7 percent for the third month in a row, low by historical standards, while average hourly earnings increased by 4.5 percent over the past 12 months, outpacing inflation. 

“Fundamentally,” Gray said, “the labor market is strong and healthy. Employers want to keep hiring for a number of reasons. Immigration has been part of this. It has provided a source of labor and the economy continues to demand it. We observed a bit of a downshift over the course of the year, but it shifted up again.”

Gray observed that the job gains were broad based. “There have not been any obvious laggards in the sectors over the last year. One sector that I had my eye on was temporary workers. That sector had 11 months of straight losses. And that has traditionally been a frequent canary in the coal mine on a potential recession if you start to see temp workers being shed. So when they were being shed month after month after month I got a little concerned. And then, that reversed. So I was surprised to see that, though maybe I shouldn’t have been in a report that was otherwise broadly strong for employment growth. We are seeing a return, I think, to broader trends.”

In Gray’s view, that’s true for the tech sector as well even though it has seen recent layoffs. “Frankly, I think, that sector was just overweight in terms of labor cost during the pandemic. I’ve heard from folks in that sector that they added a lot of people, and they added a lot of expensive people. We’re seeing the economy, as it often does, just evolve. And in that evolution, there’s rebalancing. And I think that’s what’s going on in the tech sector, whereas otherwise, broadly, you have an economy that’s growing.”

Adding to the positive economic news, the Federal Reserve Board last week again held the line on interest rates and noted that “the risks to achieving its employment and inflation goals are moving into better balance,” which many took to mean that the Fed may begin lowering rates later in the year if inflation continues to show improvement.  

Given the positive trends in the numbers, I asked Gray if we have achieved a “soft landing” for the economy following the Fed’s actions to tamp down inflation by raising interest rates without causing a spike in unemployment.

“If you listen to [Fed] Chairman Powell, he would tell you that we’re still on approach,” Gray said, “and he’s been trying to convince people that we’re not taxiing yet. There was a lot of happy talk from a lot of the big bank research shops about a Fed rate cut in March and I think the Chairman has been doing his utmost for a while to telegraph that that is a bit optimistic. So the Fed is still leaning hard. They have tightened monetary policy considerably and their view is that a restrictive monetary policy posture is appropriate for some time because they still observe risk from the inflationary side. To the extent they continue to fight those risks, that introduces risk on the employment side that introduces risk on the recovery side. I don’t think we’re out of the woods yet.”

On the plus side, Gray noted that the economy experienced a strong productivity boost in 2023, meaning that wage growth was less likely to cause inflation to rise again.

“We’re better off than a lot of people expected,” Gray said, “and I think that the productivity bump was something that a lot of people didn’t expect. That was definitely one of the things that broke big for us last year.”

Hear more on Facing the Future. I host the program each week on WKXL in Concord N.H., and it is also available via podcast. Join us as we discuss issues relating to national fiscal policy with budget experts, industry leaders, and elected officials. Past broadcasts are available here. You can subscribe to the podcast on Spotify, Pandora, iTunes, Google Podcasts, Stitcher, or with an RSS feed. Follow Facing the Future on Facebook, and watch videos from past episodes on The Concord Coalition YouTube channel.

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