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February jobs preview: What to expect after January’s blowout report

<i>Allison Joyce/Bloomberg/Getty Images</i><br/>January's jobs report delivered a heck of a surprise when it showed the US economy had added more than half a million jobs and unemployment had dipped to a level not seen in more than five decades.
Bloomberg via Getty Images
Allison Joyce/Bloomberg/Getty Images
January's jobs report delivered a heck of a surprise when it showed the US economy had added more than half a million jobs and unemployment had dipped to a level not seen in more than five decades.

By Alicia Wallace, CNN

January’s jobs report delivered a heck of a surprise when it showed the US economy had added more than half a million jobs and unemployment had dipped to a level not seen in more than five decades.

But economists say they are not bracing for another blindside when the February jobs report comes out on Friday. Consensus estimates are for job gains to weigh in at a (post-pandemic meager, but historically strong) 205,000, according to Refinitiv.

“I think most economists were comfortable dismissing the January jobs data as an anomaly,” Aaron Terrazas, Glassdoor’s chief economist, told CNN.

“If we get a second strong jobs report [on Friday], it’s no longer an anomaly,” Terrazas added. “I think anything in excess of 230,000 to 250,000 job gains is going to be interpreted as a sign that the labor market is a lot more immune to higher lending costs than anyone anticipated.”

And that would mean higher interest rates are sure to follow, he added.

The Federal Reserve is keeping close watch on the dynamics within the US labor market as the central bank tries to rein in high inflation. While not the initial cause of this bout of inflation, the tight labor market has spurred concern among Fed officials that there’s an imbalance in wage negotiating that could put upward pressure on inflation.

Data released Thursday by the Department of Labor showed that first-time claims for unemployment insurance picked up last week, jumping to 211,000 for the week ended March 4.

That’s up 21,000 from the prior week’s unrevised total of 190,000 and represents the highest weekly total since late-December of last year.

Continuing claims, which are filed by people who have received unemployment benefits for more than one week, grew to 1.718 million for the week ended February 25, from 1.649 million the week before. Economists were expecting 1.659 million.

Despite widely publicized layoffs from tech giants, media companies and the financial sector in recent weeks, the US labor market remains robust after eight rate hikes meant to cool the economy.

In testimony before Congress this week, Fed Chair Jerome Powell reiterated that the central bank will continue to hike its benchmark interest rate as long as necessary to tamp down historic inflation. While the central bank’s actions so far have slowed business investment and flash-frozen parts of the housing market, it has not crushed America’s white-hot jobs market.

Exogenous factors

January is typically a unique month when it comes to labor market data — and it was particularly so this year, Terrazas said, referencing the influence of seasonality factors and data adjustments.

Seasonal adjustments are made to help smooth out predictable periodic swings (such as holiday season hiring) to help better compare data and trends on an ongoing basis. And January’s report was also influenced by the Bureau of Labor Statistics’ annual benchmarking process to account for more current population and employment data.

Seasonality, benchmarking and the interplay of pandemic-era data don’t completely explain away January’s blockbuster jobs report, economists say, noting there are likely influences from the currently tight labor market.

“People didn’t actually lay off the people they usually do in January,” KPMG economist Diane Swonk told CNN last month. “January is the biggest layoff month, across the board, of any month out there; but even companies that saw demand waning a bit held on to workers.”

On an unadjusted basis, there was a 2.5 million decline in payrolls during January, BLS data shows. That’s the smallest unadjusted total for any January since 1995.

Unseasonably warm weather also likely played a role and could very well lead to a balmier-than-expected February jobs report, said Joe Brusuelas, chief economist at RSM, in a note this week.

RSM is projecting a net change in total employment of 310,000 and unemployment to drop further to 3.3%.

Weather can cause fluctuations in employment, especially in industries such as construction, mining and natural resources, and leisure and hospitality, according to research from San Francisco Federal Reserve economists. Warm and sunny weather typically has a positive effect on employment.

“Given how warm February was, there is a risk of another upside surprise in the jobs data like there was in January with the gain of 517,000, even as the Bureau of Labor Statistics tries to correct for the seasonal noise,” Brusuelas said. “Even if there is a healthy downward revision to the January estimate, it will require another month at least for the noise in the data to be corrected and the true pace of hiring to be understood.”

That delay, he said, presents a challenge for the Fed, which will have its policymaking meeting on March 21-22.

The latest on labor turnover, job cuts and unemployment

The latest batch of labor turnover data from the BLS released Wednesday showed there are signs of softening in the labor market — although not to the level that would spur a shift in the Fed’s approach, noted economists for Lightcast.

The number of available positions ticked down while hires picked up, layoffs grew and quits declined, according to the Job Openings and Labor Turnover Survey for January.

“Some of this intense period of openings and churn that we’ve been seeing might be reducing a little bit, and I think that’s a good sign for the Fed,” said Layla O’Kane, Lightcast senior economist, during a post-JOLTS webinar on Wednesday.

The construction industry saw a significant drop in job openings, which fell 49.2% from December. The decline could be a sign of a hard-pressed sector having an easier time finding workers, Lightcast chief economist Bledi Taska said.

However, while the sector does endure a lot of volatility (in December, there was a 40% increase in openings), economists are expecting construction employment to eventually weaken under the weight of higher interest rates. Layoffs picked up only slightly in January, as did hires and quits, according to the JOLTS report.

Separately, new data released Thursday morning showed that US employers announced 77,770 job cuts in February, according to a report from global outplacement and coaching firm Challenger, Gray & Christmas.

While that February total is down from January’s 102,943 announced cuts, it’s more than quadruple those announced in February 2021, and is the highest total for the month since 2009.

Notably, it’s the first time in more than a decade that Challenger has seen reductions in every tracked industry, said Andrew Challenger, the firm’s senior vice president. The bulk of the cuts continue to occur in the technology sector.

After bulking up and flying high during the pandemic, tech firms’ mass layoffs have drawn attention to the sector’s woes — but economists caution that those losses are not representative of what’s occurring more broadly.

“We are still not seeing layoffs ricochet into other corners of the economy,” O’Kane said.

Additionally, employment in tech-heavy industries such as software publishing, computer systems design and others continues to grow, said Julia Pollak, chief economist at ZipRecruiter.

“Tech layoffs aren’t only being offset by strength elsewhere in the economy, they’re not even showing up in the tech-related data,” she said.

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