January Jobs Report: Economy Continues to Grow in the Midst of Elevated Inflation

Dr. Bernard E. Anderson
Whitney M Young, Jr. Professor Emeritus, The Wharton School, University of Pennsylvania
Senior Economic Advisor, National Urban League

Last month, the economy added more than 517,000 jobs, exceeding employment growth expectations.

The unemployment rate was 3.4 %, little changed from December, resting at a four decade low

There was little change in the demographic pattern of employment.  Employment grew for both the Black and white workforces, but while the number of white unemployed grew by 74,000, the number of Black unemployed declined to 67,000. The Black/white gap in unemployment remains  persistently near 2:1 (1.80).

The racial trend in employment undoubtedly reflected the variation in industry employment growth and layoffs. The largest employment growth was in the leisure and hospitality industry which added 128,000 new jobs. Other industries that saw employment growth include professional and business services (+99,000), health care (+58,000), retail trade (+30,000), construction (+25,000). The private sector gained (+443,000) new jobs and government saw (+74,000) new jobs.

The unemployment rate slightly dropped to 3.4 %, a little change from December, resting at a four-decade low.

Wage growth was nearly flat. Average hourly earnings grew 10 cents, 0.3 %.  Year over year hourly earnings grew 4.4 % lifting average hourly earnings to $ 33 for the workforce at large.

Consumer spending for nondurable goods remains modest, boosting labor demand. In recent quarters, job openings continued at a rapid pace while layoffs rose in several manufacturing and technology industries. The labor market twist generates  wage increases that support consumer demand which in turn slows the reduction in inflation.

The labor force participation rate has not grown in response to the increase in worker compensation. The labor force participation rate of women has remained unchanged for more than a year. Lagging labor force growth partly reflects increased retirement among working age men and women who lost their jobs during the pandemic. Overall, there are 1.7 times as many job openings as unemployed workers. More than a million workers each month report voluntarily remaining out of the labor force, though in other times they would be seeking jobs.

The lagging rise in unemployment, coupled with declining inflation and rising interest rates, suggests that a soft landing might be possible in restoring price stability. 

In conclusion, While the economy is moving steadily forward in an environment of major uncertainty, one threat is the federal debt limit. Failure to raise the debt limit will have a devastating impact on the economy.