The Monday Morning Quarterback
A quick analysis of important economic data released over the last week
By Elliot D. Pollack & Co
As we start the new year with the thought of an impending recession, we get surprising news. The U.S. labor market accelerated at the start of the year adding a robust 517,000 jobs and pushing the unemployment rate to a 53-year low to 3.4%. January’s payroll gains were the largest since July 2022 and snapped a string of five straight months of slowing employment growth, the Labor Department said Friday. Economists surveyed by The Wall Street Journal had expected 187,000 new jobs last month.
The December increase in job openings was driven by food services, retail trade, and construction, while the biggest decline was seen in the information industry.
Wage growth continued to soften last month, despite the strong job gains. Average hourly earnings grew 4.4% in January from a year earlier, down from a revised 4.8% in December. Employment and pay data suggest that wage growth has been cooling—but at a slower pace than previously thought. The average workweek rose to 34.7 hours, the highest since March 2022. So the country is hiring new workers and they are working more hours.
U.S. job openings remained elevated at the end of last year, but layoffs ticked up in a slowly cooling labor market. A seasonally adjusted 11 million jobs were available in December exceeding the 5.7 million unemployed workers looking for work. Job openings are down from a peak of 11.9 million last March, but they are still historically high and by a ratio of nearly two to one.
Layoffs increased to a seasonally adjusted 1.5 million in December from 1.4 million the prior month, the Labor Department said. Though still below pre-pandemic levels, December layoffs were more than 15% higher than in the same month a year earlier, when there were 1.3 million layoffs. December layoffs were driven by job cuts in infrastructure, business services and hospitality industries.
A growing list of companies have recently announced job cuts or hiring freezes, though some businesses are still hiring, and jobless claims remain historically low. FedEx Corp. Chief Executive Raj Subramaniam said Wednesday in a memo to employees it is laying off more than 10% of its officer and director ranks.
The central bank raised its benchmark rate by a quarter point this week to a range between 4.5% and 4.75%. The report likely keeps the Federal Reserve on track to raise interest rates by another quarter-percentage point at its next meeting and to signal another increase is likely after that.
The Fed is trying to keep the economy growing at a slower-than-average pace to weaken demand and cool inflation. But the report Friday suggested the labor market had been even more resilient in recent months than recently reported, with the growth in average hour earnings and payrolls revised higher at the end of last year.
Some economists are now suggesting that the odds of a recession occurring this year are falling. Even Larry Summers, the economist who is hawkish on the Fed keeping interest rates at high levels, suggests that it looks more possible the U.S. will have a soft landing than it did a few months ago. But he states, inflation is still too high and needs to be tamed.
Goldman Sach’s senior energy economist, Daan Struyven, also believes we may avoid a recession. Goldman believes the bearish layoff news of some of the Fortune 500 companies—particularly in tech and finance—is deceiving. Leisure, hospitality, and state and local government are seeing robust growth, alongside the health-care sector. With the exception of health care, Struyven notes, companies in these industries are small and their robust growth is not reflected in the media. On balance, the outlook in small businesses and the services sector is positive. He even believes Europe will not have a recession despite persistent inflation and Russia’s war in Ukraine. The reason – one of the warmest winters on record in Europe, combined with a surprising uptick in natural gas supply from the U.S. and Norway that made up for Russia’s shortfall, has made that gas prices tumbled almost to pre-war levels..
There’s only one exception to Goldman’s bullishness predictions: Brexit Britain is still seen heading into a recession, due to its supply chain issues and labor market shortage.
S&P/Case-Shiller Home Price Index
The S&P CoreLogic Case-Shiller U.S. National Home Price NSA Index, covering all nine U.S. census divisions, reported a 7.7% annual gain in November, down from 9.2% in the previous month. The 10-City Composite annual increase came in at 6.3%, down from 8.0% in the previous month. The 20-City Composite posted a 6.8% year-over-year gain, down from 8.6% in the previous month.
Miami, Tampa, and Atlanta reported the highest year-over-year gains among the 20 cities in November. Miami led the way with a 18.4% year-over-year price increase, followed by Tampa in second with a 16.9% increase, and Atlanta in third with a 12.7% increase. November is the eighth consecutive month that a Florida city has been the national leader. All 20 cities reported lower price increases in the year ending November 2022 versus the year ending October 2022.
Greater Phoenix prices were down 1.9% month-over-month in November. However, for the year, prices are still up 6.3%.
- Consumer confidence retreated in January to 107.1, after an upward revision in December’s level to 109. Despite the decline, consumer confidence remains above last year’s low. The drop was primarily due to economic concerns in the next six months.
- Job openings rose unexpectedly in December and are once again above the 11 million mark. Job openings rose 5.5% for the month but were down 3.8% from a year earlier. The number of hires outpaced the number of separations 6.2 million to 5.9 million, respectively. The number of quits remained high at 4.1 million and has been above 4 million since June 2021.
- ISM’s Manufacturing PMI index declined from 48.4 to 47.4 in January. This was the lowest level since May 2020 and continues to signal a recession in the broader economy. However, ISM’s Services PMI index bounced back after dipping below 50. January’s level increased 11.3% to 55.2, and the index was well above the recession signal of 50.