The January jobs report revealed a labor market still running hot, with 353,000 positions added - the strongest hiring in a year. The figures stunned economists who had forecasted slowed hiring from higher interest rates. The job growth also makes it unlikely the Fed will deliver desired rate cuts until late in the spring or early in the summer. Comments by Fed Chair Jerome Powell also suggest that the central bank would only pursue 3 rate cuts this year compared to the 6 previously expected.
Read more: Rate-Cut Pivot Can’t Come Soon Enough for Debt-Strapped Companies. (Bloomberg)
Underneath the otherwise healthy gauge of the US economy lies a deeper concern though: why has job growth remained strong despite tighter interest rates pouring cold water on US firms? January’s unexpected figures cast doubt on the standard explanation that firms are just ‘hoarding’ labor. Layoffs doubled, and multiple surveys show most are struggling with labor quality, not availability.
Rapid immigration might explain it, supplying workers not captured in data. But with job cuts surging 136% in January, there is real concern that a tight labor market from decelerating US population growth may lead to longer-term tightness, and higher competition for employees.
Nonetheless, small businesses remain optimistic. A Goldman Sachs survey found 57% of small firms plan to add jobs this year given upbeat financial prospects. January's broad job gains across nearly two-thirds of industries shows the labor market's underlying strength. So while the Fed may delay rate cuts, it seems workers and firms are, on average, both benefiting from a goldilocks zone of opportunities.
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