However, unemployment went up by 242,000 to 3.6%, continuing the question of what the Federal Reserve might do next.
What’s the job market doing? According to the February numbers just out from the Bureau of Labor Statistics, it’s going in two ways at once. First, jobs are up by 311,000. Not the utter blowout of January, but distinctly more than the 225,000 economists generally expected.
As Oxford Economics summarized, “The labor market cools from blistering to just plain hot.”
Though, as David Harrison of the Wall Street Journal noted, “But month-to-month wage gains cooled to 0.2%, the slowest increase in 12 months.”
And yet, the unemployment rate grew from 3.4% to 3.6%. So, what’s going on?
A GlobeSt.com review of the details shows a complex set of interacting forces. The number of jobs did increase. Then again, that might not be surprising, given that the number of job openings at the end of January 2023 was 10.8 million, down from 11.2 million in December 2022. Some of the drawdown is likely open positions being shelved for now, but another part will be jobs that get filled and, therefore, are no longer open.
The civilian labor force grew by 419,000 between January and February, about a third higher than the number of jobs filled. But the number of unemployed grew by 242,000. The roles of the unemployed are getting boosted quickly, as 343,000 have been unemployed for less than five weeks. One big contributor to the increase of those out of work are people who lost jobs or temporary positions: 223,000. Dropping temporary help is a common action when companies expect tougher economic times because they can save money going forward and won’t have severance to pay. And people laid off, another common occurrence, are treated as still in the job market even if they haven’t yet begun looking for a new position.
And then there is the uncertainty of what some of the numbers mean. Giacomo Santangelo, a senior lecturer of economics at Fordham University, points to the tech layoffs during the fall. “Are the people who have recently been laid off being counted in the labor pool or not?” Information from the BLS suggests that they aren’t, but says that it supposed to be when someone expects to be rehired and doesn’t say how long that status lasts. Many in the tech crowd received large severance packages that could keep them comfortable for months.
Also, consider the U-6 measure of unemployment, which counts “total unemployed, plus all persons marginally attached to the labor force, plus total employed part time for economic reasons, as a percent of the civilian labor force plus all persons marginally attached to the labor force.” That just rose from 6.6% to 6.8%.
Thus, the numbers can seem to go in two directions at the same time, leaving a mix of expectations and predictions of what the Federal Reserve might decide for interest rate hikes and whether the country could be moving closer to a recession.
“The performance of the labor market will play a significant role in the Fed’s decision to continue increasing the federal funds rate to reduce broad price inflation,” Carlos Vaz, founder of CONTI Capital, said in remarks emailed to GlobeSt.com. “Despite the decrease in job growth from the previous month, the current level of growth suggests that the Fed will implement at least three more 25-basis point hikes at the next three [Federal Open Market Committee] meetings, targeting a range of 5.25-5.5% at the lower end of our forecast.”
Oxford Economics agrees, stating that “the pace of job growth is still too rapid for the Fed’s liking and leaves the Fed on track to raise rates at each of the next three meetings, pushing the terminal range for the fed funds rate to 5.25%-5.50%, with a risk that more rate hikes come in the second half of the year.”
The question is what might happen if rates reach that level. Vaz says that it “may tighten financial conditions, possibly leading the U.S. economy into a recession,” but that a downturn would be relatively “short-lived and shallow” because of the strength of the labor market and consumer spending.