Jobs Report to Show Whether Labor Market Cooling Extended Into January

The economy grew 1% in the fourth quarter of 2022 compared with a year earlier, down sharply from 2021. 

Yet hiring has remained solid in recent months even though the pace of job gains has slowed from red-hot growth during the pandemic rebound. Payrolls grew by an average of 247,000 a month in the final quarter of 2022, down from 418,000 in the preceding nine months. 

Wage gains, a factor driving inflation, have also shown signs of cooling but remain elevated.

Economists surveyed by The Wall Street Journal estimated that employers added 187,000 jobs in January and that the unemployment rate was 3.6%, just above a half-century low.

The Labor Department will release January employment figures on Friday at 8:30 a.m. Eastern time.

A question now is whether the economy will slow just enough to keep inflation in check or whether the slowdown will continue until it drives the U.S. into recession.

“The labor market is going to cool pretty considerably in 2023,” said Jonathan Pingle, chief U.S. economist at UBS. “We’re expecting an economic contraction to unfold over the latter three quarters of the year.”

Already, many companies from a variety of industries have announced job cuts.

FedEx Corp.

,

Rivian Automotive Inc.

and

Okta Inc.,

a business-software firm, all announced layoffs this past week.

Brent Oakley, chief executive of Indiana-based Vibenomics, which produces in-store music programming for retailers, said he has pulled back on hiring, after several years of rapid growth.

“We’re very specific on what we need and not hiring anybody until revenue supports it,” he said.

Economists in a Wall Street Journal survey in January saw a 61% probability of a recession in the next 12 months. They also saw the unemployment rate rising to 4.7% by the end of the year.

Still, the labor market remains historically tight. On Wednesday, the Labor Department said employers had 11 million job openings at the end of December, roughly 600,000 more than in the previous month. There were roughly 1.9 open jobs per unemployed worker in December, up from 1.7 in November, according to the figures.

On Thursday, the department said first-time applications for unemployment benefits fell to 183,000 last week, the lowest level since April 2022. The unemployment rate fell to 3.5% in December, matching a half-century low, according to the Labor Department.

Federal Reserve officials have been debating how much they need to increase interest rates to bring inflation back under control. Pausing increases too early could cause inflation to pick up again, while pushing rates too high could lead to a recession.

The Fed raised interest rates by a quarter-percentage point Wednesday, an eighth straight rate increase that lifted its benchmark federal-funds rate to a range of 4.5% to 4.75%. Fed Chair

Jerome Powell

told reporters following the meeting that he saw a couple more rate increases as appropriate.

He also suggested that the Fed’s efforts appear to be working so far.

“It is a good thing that the disinflation that we have seen so far has not come at the expense of a weaker labor market,” he said. “Despite the slowdown in growth, the labor market remains extremely tight.”

The challenge now for Fed officials will be to find a balance that allows them to continue to slow inflation without doing too much damage to the overall economy, said Guy Berger, principal economist at LinkedIn.

“On one side we have the gradual cooling of the labor market, on the other side inflation is coming down,” he said. “Does inflation come down quickly enough so the Fed is willing to stop pushing on the brake? Or do we tip into recession first?”

A key consideration for Fed officials will be whether wage increases continue to cool. Officials have worried that rapidly rising wages could push up inflation, which could force them to raise interest rates more aggressively.

Earlier this past week the Labor Department said growth in wages and benefits moderated in the fourth quarter. 

Brittany Smith, founding partner of Wealth Partners Alliance, a wealth-management firm in Dallas, said she has seen a shift in the expectations of job applicants.

“A year ago, whenever we were interviewing, the applicants seemed to have the upper hand. They wanted the work-from-home flexibility, they wanted higher compensation, and they were less qualified,” she said. “Now I’m seeing lower compensation, similar qualifications, with less restrictions.”

Friday’s report will include revised data for the 12 months ended in March 2022. That period includes both the rise of the Omicron variant of Covid-19 and the rapid revving up of the economy following the pandemic-related lockdowns.

An early estimate of the revisions by the Labor Department showed slightly more job growth in March 2022 than previous estimates, suggesting the labor market was hotter than previously thought.

Write to David Harrison at [email protected]

The economy grew 1% in the fourth quarter of 2022 compared with a year earlier, down sharply from 2021. 

Yet hiring has remained solid in recent months even though the pace of job gains has slowed from red-hot growth during the pandemic rebound. Payrolls grew by an average of 247,000 a month in the final quarter of 2022, down from 418,000 in the preceding nine months. 

Wage gains, a factor driving inflation, have also shown signs of cooling but remain elevated.

Economists surveyed by The Wall Street Journal estimated that employers added 187,000 jobs in January and that the unemployment rate was 3.6%, just above a half-century low.

The Labor Department will release January employment figures on Friday at 8:30 a.m. Eastern time.

A question now is whether the economy will slow just enough to keep inflation in check or whether the slowdown will continue until it drives the U.S. into recession.

“The labor market is going to cool pretty considerably in 2023,” said Jonathan Pingle, chief U.S. economist at UBS. “We’re expecting an economic contraction to unfold over the latter three quarters of the year.”

Already, many companies from a variety of industries have announced job cuts.

FedEx Corp.

,

Rivian Automotive Inc.

and

Okta Inc.,

a business-software firm, all announced layoffs this past week.

Brent Oakley, chief executive of Indiana-based Vibenomics, which produces in-store music programming for retailers, said he has pulled back on hiring, after several years of rapid growth.

“We’re very specific on what we need and not hiring anybody until revenue supports it,” he said.

Economists in a Wall Street Journal survey in January saw a 61% probability of a recession in the next 12 months. They also saw the unemployment rate rising to 4.7% by the end of the year.

Still, the labor market remains historically tight. On Wednesday, the Labor Department said employers had 11 million job openings at the end of December, roughly 600,000 more than in the previous month. There were roughly 1.9 open jobs per unemployed worker in December, up from 1.7 in November, according to the figures.

On Thursday, the department said first-time applications for unemployment benefits fell to 183,000 last week, the lowest level since April 2022. The unemployment rate fell to 3.5% in December, matching a half-century low, according to the Labor Department.

Federal Reserve officials have been debating how much they need to increase interest rates to bring inflation back under control. Pausing increases too early could cause inflation to pick up again, while pushing rates too high could lead to a recession.

The Fed raised interest rates by a quarter-percentage point Wednesday, an eighth straight rate increase that lifted its benchmark federal-funds rate to a range of 4.5% to 4.75%. Fed Chair

Jerome Powell

told reporters following the meeting that he saw a couple more rate increases as appropriate.

He also suggested that the Fed’s efforts appear to be working so far.

“It is a good thing that the disinflation that we have seen so far has not come at the expense of a weaker labor market,” he said. “Despite the slowdown in growth, the labor market remains extremely tight.”

The challenge now for Fed officials will be to find a balance that allows them to continue to slow inflation without doing too much damage to the overall economy, said Guy Berger, principal economist at LinkedIn.

“On one side we have the gradual cooling of the labor market, on the other side inflation is coming down,” he said. “Does inflation come down quickly enough so the Fed is willing to stop pushing on the brake? Or do we tip into recession first?”

A key consideration for Fed officials will be whether wage increases continue to cool. Officials have worried that rapidly rising wages could push up inflation, which could force them to raise interest rates more aggressively.

Earlier this past week the Labor Department said growth in wages and benefits moderated in the fourth quarter. 

Brittany Smith, founding partner of Wealth Partners Alliance, a wealth-management firm in Dallas, said she has seen a shift in the expectations of job applicants.

“A year ago, whenever we were interviewing, the applicants seemed to have the upper hand. They wanted the work-from-home flexibility, they wanted higher compensation, and they were less qualified,” she said. “Now I’m seeing lower compensation, similar qualifications, with less restrictions.”

Friday’s report will include revised data for the 12 months ended in March 2022. That period includes both the rise of the Omicron variant of Covid-19 and the rapid revving up of the economy following the pandemic-related lockdowns.

An early estimate of the revisions by the Labor Department showed slightly more job growth in March 2022 than previous estimates, suggesting the labor market was hotter than previously thought.

Write to David Harrison at [email protected]