Breaking Down January Jobs Data: Once Again, Economists Were Wrong (Thankfully)
After a steady stream of news articles preparing Americans for the possibility that today’s release of the Bureau of Labor Statistics’ January jobs report might look like the sky was falling, economists and economic news reporters are probably feeling like Chicken Little on the day after.
They expected that the data would show a severe slowing of payroll employment growth—or even a decrease—because of how payroll employment is defined in the payroll survey: If a worker did not receive pay for work during the survey period, they wouldn’t be counted as employed.
They feared that workers who lack paid sick-leave benefits and were absent from work during the entire survey period due to the Omicron wave sweeping the country might not have been counted as employed in the payroll survey. In other words, these workers would have fallen through an imaginary hole in the dataset.
Thankfully, that didn’t happen. Payroll employment growth (467,000) was three times higher than economists projected and the labor force participation rate (LFPR) substantially rose to 62.2 percent as sidelined workers found new jobs. Meanwhile, average wage growth for all payroll employees (5.7 percent, year-over-year) continued to hold steady with the broadest measure of inflation. Wage growth for leisure and hospitality workers (13 percent) is markedly higher due the reduced labor supply for those jobs.
However, disaggregation reveals an important trend in the details: The average wage for lower-paid jobs is rising faster than for higher paid jobs. For example, the average year-over-year wage growth for all production and non-supervisory employees was 6.9 percent, while generally lower-paid leisure and hospitality workers saw average wage growth of 15 percent. That astonishing, because the fact that it’s an average implies that there are local labor markets where the wage growth may be much higher.
In other good news, the number of unemployed workers (6.5 million) and the unemployment rate (4.0 percent) rose slightly. It may seem counterintuitive to celebrate rising unemployment, but it’s a good sign for the labor market and the broader economy because it means that workers are getting up off the bench and seeking employment.
Rising unemployment is directly commensurate with rising labor market participation. A worker is counted as being part of labor market only when employed or actively seeking a job—for the most part you can’t have one without the other. But businesses’ higher-than-normal demand for labor means that employer-worker connections are happening unexpectedly fast. Labor market participation rose by 1.4 million from mid-December to mid-January, while unemployment only rose by 200,000, implying that many workers were able to find jobs as soon as they started looking.
It will be interesting to see what effect this seeming surge of workers rejoining the labor market has on January’s job openings report (to be released on March 9). December’s “Job Openings and Labor Turnover Survey” (JOLTS) estimated that there were 10.9 million job openings across the United States. It also showed extremely high quit rates in accommodations and food services—1 out of every 16 workers left their job last month for better opportunities (hence that industry’s high wage growth as businesses try to attract new workers).
If the current data is accurate, then we’re now only 2.4 million workers away from a pre-pandemic-equivalent labor market, after recovering a third of the outstanding amount in a single month. That’s impressive, because it means we’re getting close to “full recovery.” It’s also important to remember that workers’ and their families’ lifestyles have changed over the last two years. That’s likely a contributor to the reduction of labor supply. As a result, we shouldn’t expect the post-pandemic labor market to perfectly resemble what came before.
Lastly, it’s good to remember that this array of good news might just be a statistical blip—the result of the survey sample not being a good representation of the overall population, which would mean we might see reversions to more accurate (and less optimistic) estimates in coming months.
So keep your fingers crossed, don’t count your chickens before they’re hatched, and please don’t step on any cracks. Labor market forecasting isn’t voodoo, but a lucky charm can’t hurt. Personally, I won’t be changing my underwear until the next jobs report comes out.