The nation’s economy likely produced another month of healthy hiring in February, once again brushing aside the effects of high interest rates with unexpected ease.
When the Labor Department issues the monthly jobs report Friday, economists predict it will show that employers added a solid 200,000 jobs in February, according to a survey of economists by the data firm FactSet. Though that would be down from the blockbuster gains in December (333,000) and January (353,000), it would still be plenty high enough to outpace population growth and keep the unemployment rate near a half-century low.
Economists have projected that the jobless rate stayed at 3.7% in February. If so, it would mark the 25th straight month in which the unemployment rate has remained below 4% — the longest such streak since the 1960s.
The job market’s health over the past three years, as the economy accelerated out of the pandemic recession, has been remarkably steady and strong. Now, there are signs it is cooling. Employers added 3.1 million jobs in 2023, a solid gain but down from 4.5 million in 2022 and a record 7.2 million in 2021. Job openings, while still relatively plentiful, are well below their peak.
The deceleration in hiring, though, is being welcomed by the Federal Reserve, which might otherwise worry that a too-hot job market would force companies to sharply raise wages and prices and re-ignite inflation. When the Fed began aggressively raising rates in March 2022 to fight the worst bout of inflation in four decades, a painful recession was widely predicted, with waves of layoffs and high unemployment. The Fed boosted its benchmark rate 11 times in 2022 and 2023, to the highest level in more than two decades.
Inflation has eased, more or less steadily, in response: Consumer prices in January were up just 3.1% from a year earlier — way down from a year-over-year peak of 9.1% in 2022 and edging closer to the Fed’s 2% target.
Despite sharply lower inflation, a consistently healthy job market and a record-high stock market, many Americans say they are unhappy with the state of the economy — a sentiment that is sure to weigh on President Joe Biden’s bid for re-election. Many voters blame Biden for the surge in consumer prices that began in 2021. Even after inflationary pressures have significantly cooled, average prices remain about 17% above where they stood three years ago.
Yet the progress so far against inflation has been striking, and many Americans are exhibiting confidence in the economy through their actions: Consumers, whose average wages have outpaced inflation over the past year and who socked away money during the pandemic, have continued to spend and drive economic growth. The economy’s gross domestic product — the total output of goods and services — grew by a solid 2.5% last year, up from 1.9% in 2022. And employers keep hiring.
“The labor market, although cooling, is holding up remarkably well despite tighter monetary policy,’’ said Satyam Panday, chief U.S. Economist at S&P Global Ratings.
Immigration has helped invigorate the job market since the end of pandemic-related travel bans. Last year, foreign-born individuals accounted for 62%, or 1.5 million, of the 2.4 million people who either obtained a job or began looking for one. The economy’s growth depends on a steady influx of job seekers.
“Barring significant changes in immigration policy, the foreign-born population will likely continue to grow strongly this year and next, supporting growth in employment,’’ economists at BNP Paribas wrote in a report this week.
In the meantime, the job market’s modest slowdown is happening so far in perhaps the most painless way possible: Companies are posting slightly fewer job openings rather than laying people off. The number of Americans filing for weekly unemployment benefits — a rough proxy for the number of layoffs — has remained low, suggesting that most workers enjoy solid job security.
Wage growth still remains slightly high from the Fed’s perspective because it can contribute to inflation pressures. Forecasters expect that average hourly wages rose 4.5% last month from February 2023, according to FactSet. That would exceed the 3.5% year-over-year increase that is widely seen as consistent with the Fed’s 2% inflation target.
“The Fed does not want to see the job market collapse but would like to see the demand for labor soften enough to be confident wage growth will continue to slow,’’ said Nancy Vanden Houten, lead U.S. Economist at Oxford Economics. “Monthly trend job growth of less than 200,000 is probably more consistent with that objective.’’
Some economists argue, though, that pay increases don’t need to drop so much: A surge in productivity that started last year — as companies invested in machines and used their workers more efficiently — means that employers can pay more and still reap profits without raising prices.
