Monthly Economic Insights – February 2024
The jobs market continues to defy expectations. Here's why.
The unemployment rate has been below 4 percent for 2 years running, the best such record since the 1960s.
And if you’re looking for any signs of it fading, it certainly doesn’t show in January’s jobs number of 353,000, on the heels of an upwardly revised gain of 333,000 for December. On top of strong numbers, the job gains were also remarkable since they were widespread across the job market, with gains in goods, services and public sector jobs. Just under two-thirds of private-sector industries added jobs last month, a dispersion rate higher than the 2011-19 average. Wage growth was also strong last month, at 0.6 percent for the month and 4.5 percent over the year.
While it all sounds quite positive, these reports still cause concern among economists who feel that a too-strong labor and wage market could heat up employers’ labor costs, sparking more inflation and higher unemployment.
At 3.7%, the unemployment rate in January was higher than the historical low of 3.4% in January of last year, but still in very favorable territory from a macroeconomic perspective.
Which sectors are driving new jobs? The top five include healthcare (+70,000), government (+36,000), retail (+45,000), manufacturing (+23,000) and professional services (+74,000). On the other hand, mining, quarrying and oil and gas extraction declined by 5,000 jobs.
Why aren’t things tighter? There’s not one explanation, but certain trends have helped. Of note, higher interest rates seem to have cooled demand for workers without a big jump in layoffs. Job openings have also declined over the past year, and more workers are staying in their current jobs longer instead of quitting in the hopes of better pay.
Bottom Line: Inflation appears under control, wage growth has slowed and businesses have been able to increase the supply of goods to meet still-high consumer demand. All signs that the economy is on solid footing.
After being hit hard by inflation over the last two years, there are also signs the American consumer is finally starting to feel better about the economy, as consumer sentiment rose by 13% in January, and by 29% since November, the largest 2-month gain since 1991.
Markets have also improved with the S&P 500 up 26% in 2023, rallying the last few months as recession fears faded. The more diversified equal-weighted S&P 500 finished 2023 at +14%.
Investors and consumers alike seem to be on the same page now, more willing to welcome – and truly believe in – a strong economy, given signs that inflation is moderating as planned. And with employers, workers and consumers less exposed to volatility, interest rate reductions should continue to gain support in the coming months.
— Marcus Scott, CFA, CFP®, Chief Investment Officer (CIO) for Country Club Trust Company
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