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All eyes will be on the February jobs report when it comes out on Friday morning, after an unexpected burst of hiring last month left economists scratching their heads and raised fresh concerns about the spread of the high inflation.
The high stakes of the Ministry of Labor payroll report is forecast to show that hiring rose by 203,000 last month and that the jobless rate held steady at 3.4 percent, a half-century low, according to an average estimate by Refinitiv economists.
That would mark a drop from January’s gain of 517,000 and would be the weakest monthly job gain since December 2020.
While monthly jobs data is always important, the Federal Reserve signaled that it is watching that report closely for signs that the labor market is finally softening and that January’s boom rates were an anomaly as policymakers try to get inflation under control. The consumer price index fell slightly from a peak of 9.1% in June, but remains about three times higher than the pre-pandemic average.
FED CHAIR POWELL SAYS INTEREST RATES ARE ‘LIKELY TO BE HIGHER’ THAN PREVIOUSLY
A warmer-than-expected number on Friday could be a worrying sign for the US central bank, which has already approved eight straight rate hikes and signaled it intends to keep rates high for “some time”. In testimony before Congress this week, President Jerome Powell indicated that officials may need to raise interest rates higher than previously anticipated in the face of hotter-than-expected economic data.
“Last month’s data raised the possibility that the labor market was much stronger than previously thought and that inflation could pick up again,” said Brad McMillan, chief investment officer for the Commonwealth Financial Network. “Data since then, from areas other than the labor market, have borne this out.”
He added, “The question this month is whether we’re going to get another incredibly strong report — so we’re likely to see a sustained acceleration in inflation again — or whether last month was a one-off.”
A hiring sign is seen during a job fair at a Schneider Electric manufacturing facility in Hopkins, South Carolina, January 18, 2023. (Micah Green/Bloomberg via Getty Images/Getty Images)
There is a risk that the jobs data will surprise to the upside on Friday morning, according to RSM chief economist Joe Brusuelas. The RSM forecast that hiring rose by 310,000 last month and that the unemployment rate fell even lower to 3.3% due to unusually warm weather in February.
“Given how warm February was, there is a risk of another upside surprise in the jobs data like January’s 517,000 increase, even as the Bureau of Labor Statistics tries to correct for seasonal noise,” Bruzuelas said. “Even if there is a healthy downward revision to the January estimate, it will take at least another month to iron out the noise in the data and understand the true pace of hiring.”
The labor market remained historically tight for most of the year. A separate report released Wednesday showed there were about 10.8 million jobs in January, or about 1.9 job openings per unemployed worker. The number of available jobs it has now surpassed 10 million for 20 consecutive months. before the pandemic began in February 2020, the highest on record was 7.7 million.
There are other signs that the labor market is starting to weaken.
INFLATION CONTINUES TO EXCEED WAGES IN MOST US CITIES
There’s been a wave of notable layoffs in recent months, and the list is growing by the day: Amazon, Apple, Meta, Lyft, Facebook, Google, IBM, and Twitter are among the companies letting workers go .
Recruiters talk to job seekers during a job fair in Miami on December 16, 2021. (Eva Marie Uzcategui/Bloomberg via Getty Images/Getty Images)
This could soon seep into the wider labor market. Powell has made clear that policymakers expect job growth to slow and unemployment could rise as they push interest rates higher, but has argued that an alternative where prices rise uncontrollably is worse.
For many economists, the possibility of rising unemployment has become a question of when rather than if.
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The central bank previously forecast the unemployment rate to rise significantly to 4.6% and remain high in 2024 and 2025 as steeper interest rates continue to weigh on borrowing costs. This could amount to more than 1 million job losses.
Higher interest rates tend to create higher interest rates on consumer and business loans, which slows down the economy forcing employers to cut spending.