The United States continues to have a bomb-proof labor market. The unemployment rate has been below 4% for two full years, something that has not been seen for decades. The economy has been creating jobs for 37 consecutive months despite the interest rate increases approved by the Federal Reserve to combat inflation. Furthermore, the January figures have exceeded all forecasts and show an unforeseen acceleration in job creation.
The economy created 353,000 non-agricultural jobs in January, according to the figures released this Friday by the Bureau of Labor Statistics, dependent on the Department of Labor. The unemployment rate stood at 3.7%, equal to the 3.7% at the end of 2023. In addition, the job creation figures for last November and December have been revised upwards.
Employment is growing in almost all sectors, but those that showed the most strength in January were professional and business services, which added 74,000 jobs; the health sector, with 70,000 more jobs; retail trade (+45,000) and social assistance (+30,000). Industrial employment (+23,000) and public employment (+36,000) also grew and the only sector that fell was mining and forestry, which lost 6,000 jobs.
The strength of job creation is good news for the president, Joe Biden, at the beginning of the year in which he will seek re-election. Consumer confidence has been improving, but high prices, particularly for food, weigh on the minds of many citizens. Biden, who has celebrated the job creation data, has begun to criticize distribution companies for not adjusting their margins and maintaining prices that are too high, in his opinion.
Double survey
In the United States, the labor market is mainly measured with two surveys: one for companies and the other for households. The first is taken as the main reference for the job creation figure and the second is used to measure the active population and the unemployment rate. Therefore, sometimes the figures do not fit perfectly and are somewhat contradictory. The household survey figures the active population at 167.3 million people in January, indicates that there are 6.12 million unemployed and indicates that the number of employees was reduced last month by 30,000, to 161.15 million, in contrast to the figures of the survey of companies, the most followed by the market. This contradiction explains why the unemployment rate is not going down.
The resilience of the American economy has defied all expectations. Economists predicted that reducing the lowest inflation in four decades would require triggering a full-blown recession by tightening monetary policy. The truth, however, is that the economy has continued to grow at a good pace and generate employment despite the rising price of money.
The president of the Federal Reserve, Jerome Powell, has been seeking that soft landing for more than a year, a reduction in inflation to the price stability objective, conventionally located at 2%, without excessively damaging the level of employment, another objective of the central bank's dual mandate. For now he is succeeding, although he does not dare to claim victory. The Federal Reserve's preferred measure of inflation has fallen to 2.9%, falling below 3% for the first time since 2021. Furthermore, annualizing the rates of price increases from the last quarter or last half, the level already would be below 2%.
The market now expects interest rate cuts and the Federal Reserve has begun to prepare the way for this, but Powell has asked for patience until he is confident that reducing inflation to 2% is sustainable. The market has interpreted this as practically ruling out a rate cut at the March monetary policy committee meeting, which the president of the central bank himself described as “unlikely.” With January's job creation data, such an imminent rate cut seems almost impossible.
Powell noted this Wednesday that the labor market remains “strong.” “We have had an unemployment rate of less than 4% for two years. That hasn't happened for 50 years. It's a good job market. And we have seen inflation go down. We have already talked about it. We have had six months of good inflation data and we hope there will be more. It's a good situation. Let's be honest. It's a good economy. But what are the prospects? We will see that in the review. The outlook, we expect growth to moderate. Of course, we have expected it for some time and it has not happened, but we hope that it will moderate as the supply chain and labor market normalization take their course,” he explained at the press conference.
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