U.S. likely added 187,000 jobs in January, but watch out for this wild card

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New US job creation likely slowed for a sixth straight month in January, but the historically tight labor market has shown great resilience even as the economy weakens. But how long can this go on?

Here’s what to watch for in Friday morning’s January jobs report, including potential wild cards.

wall street forecast

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The US is expected to add 187,000 new jobs in January, compared to 223,000 in the final month of 2022, according to a survey of economists by The Wall Street Journal.

If this happens, it will be the lowest increase in the last two years. The big question is, is this slow enough for the Federal Reserve?

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In a word, no. Fed Chairman Jerome Powell has said the economy needs to add about 100,000 new jobs in just one month to absorb all the new workers entering the labor force.

Anything more than this is seen as contributing to increasing pressure on wages as businesses compete for labor. The Fed worries that continued strong wage growth could make high US inflation harder to get under control.

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“Job growth is projected to slow in 2022, but is still well above the pre-pandemic pace,” said Gus Faucher, chief economist at PNC Financial Services.

revisionist history

The January jobs report also has the potential to rewrite the current outlook on the labor market.

Every year the government revises its previous estimates of employment gains after matching them with the actual payroll tax returns of American businesses. In most years the changes are not much.

This may not be the case in 2022. It’s possible that the updated data shows that hiring was slower at the end of the year than before.

Economists say investors should be cautious about reading too much into the report if January jobs gains are much higher or lower than Wall Street forecast.

unemployment rate

Wall Street DJIA,

predicts the unemployment rate will rise to 3.6% from 3.5% in January, leaving it near a 54-year low.

Don’t expect unemployment to stay that low, though. The economy has slowed in response to rising interest rates orchestrated by the Fed to reduce high inflation.

The Fed previously predicted the unemployment rate would rise to 4.6% by next year, and many private economists believe it could rise further.

Outplacement firm Challenger, Gray & Christmas said US layoffs hit a two-year high in January, a possible harbinger of things to come.

worker’s pay

Average hourly wages are projected to increase 0.3% for the second month in a row. This will be one of the smallest increases in the last two years.

Still, employee wages are rising too fast for the Fed’s liking. Wages grew at a 4.6% annual pace in December, up from pre-pandemic levels of 2% to 3%.

Economists say wage growth could slow again to 4.3% in January, further easing the Fed. The pace of wage growth has slowed from a 40-year high of 5.6% last year.

Yet wages are likely to continue rising at what the Fed considers an excessively fast clip, as long as there are far more available job opportunities than willing workers.

labor force

The share of the working-age population in the labor force has declined by about 62% over the past year. In other words, only 62 out of every 100 people of working age either have a job or are looking for one.

The so-called participation rate is still a point below the pre-pandemic peak and down sharply from the record 67.3% in 2000.

Many of the missing workers are baby boomers who have retired, but the pool of available labor has shrunk for a variety of reasons. This helps explain why the labor market is so tight and why wages are rising so fast.

Credit: www.marketwatch.com /

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