Economic data can be messy. Like everything else in life, nothing goes according to plan. Life is noisy and economic data is especially so in this environment.
COVID policies – lockdowns, stimulus packages, massive borrowing – have never been tried before. It resulted in an astounding economic boom (printing trillions of dollars will do this), but many did not know how the economic boom would play out. Which sectors will benefit the most? Will the impact benefit all socioeconomic classes? How long will the boom last?
So knowing what will happen after the COVID policies have stopped is still up for debate. Most people agree that there will be an economic hangover. We are undoubtedly living through one right now. The Federal Reserve has aggressively raised rates, making it more challenging to buy a home, take out a business loan, etc. The money supply has contracted. The stock market has fallen. Retail sales are slipping. Overall, the economy is coming back down to earth.
However, not everything has gone according to script. The jobs market refuses to break, and it remains the economic stalwart in an otherwise crappy environment.
January Jobs Buck the Trend
U.S. employers added 517,000 jobs in January 2023. This is quite impressive, as the consensus estimate was 187,000 jobs. Not one economist came close to getting this number right.
The unemployment rate fell to 3.4% versus the estimate of 3.6%. This is the lowest jobless level since 1969.
This is even more impressive because retail sales and industrial production fell 4.3% and 5.2%, respectively, during the same timeframe.
U.S. Jobs – the Outlier
As you may have noticed, the monthly change in U.S. jobs created has been steadily declining since July 2022, with the exception being January 2023.
Almost every other economic indicator in the U.S. has been signaling a recession. However, U.S. jobs figures have been the outlier – the dissident element of our economy refusing to give in, even with the declining growth rate.
For many that follow economic trends, myself included, the U.S. jobs report is to be the last shoe to drop in a weakening U.S. economy. After all, unemployment is a lagging indicator. Once people start to lose their jobs, the economy has already begun to decline. The last thing employers want to do is to lay off their staff. As we have all experienced over the past couple of years, it is difficult to hire quality individuals. No company wants to be left behind in a competitive industry. This can be a death sentence in most industries. It is much better to hold onto staff as long as possible.
But once it all hits the fan, companies go into crisis mode and do whatever they can to survive the storm. Thus, unemployment becomes a lagging indicator as the economy is already contracting and likely in a recession.
Noise in the Data?
So, is the January 2023 jobs data noise, or is it signal? Should we ignore it? We don’t know.
It is only one month, so it certainly does not make a trend. However, it was such a strong number – it would be foolish to simply ignore it.
Perhaps there was so much pent-up demand for workers over the past couple of years (due to the pandemic) that this is simply a delayed reaction. Combine this with the fact that employment is a lagging indicator, and this makes sense. I think this is the case, but time will tell.
We will keep a close eye on the next few months of employment data to confirm whether this is a new trend or an outlier in an otherwise weakening job market. The rest of the economic data suggests that the jobs market cannot stay strong forever.