The Labor Department’s January employment report was extremely strong by absolutely any standard.
Don’t be distracted by the argument that “seasonal adjustments are misleading.” It’s true that several monthly jobs reports have been suspect over the past couple of years because COVID-related disruptions in normal hiring cycles affected the normally benign seasonal adjustment process. Those problems, though, happened near the beginning or end of the academic year and showed up almost entirely in school employment numbers.
In contrast, January’s strong jobs growth was very much a “what-you-see-is-what-you-get” report. Here are four key takeaways:
First, there are 517,000 more jobs than in December, and almost 5 million more jobs than a year ago. Almost 25 million more jobs than in the worst of the COVID shutdown and 2.7 million more jobs than before the pandemic started.
Second, the U.S. is in its fourth straight month of declining unemployment, from 3.7 percent to 3.4 percent. Month-to-month ticks mean very little, but a sustained improvement is genuinely good.
Third, improvement was reported in the employment-to-population ratio for four of the five groups that typically provide early signals of weak job markets: Young adults (up from 51.3 percent to 52.0 percent), Black people (58.9 percent to 59.5 percent), adults with less than a high school diploma (43.4 percent to 43.9 percent), and white women (54.3 percent to 54.6 percent).
Fourth, January was the 8th straight month in which job growth beat the “consensus” expectations of economic forecasters. Put simply, the economy is just much more robust than people realize.
The fifth strength is not especially newsworthy, but it is very important: employment in residential construction continued to hold steady.
The collapse in single-family housing construction during 2022 was scary. During the last 10 months of the year the number of new building permits for single-family houses plummeted by 39 percent, from 1.2 million to just 731,000. The U.S. hasn’t seen such a rapid collapse since early 2008 during the Great Recession.
Housing Construction Jobs, Permits & Starts
Created by Brad Case, PhD, CFA, CAIA. Data from U.S. Bureau of Labor Statistics and U.S. Census Bureau.
Given that scary historical parallel, it’s important to understand that the jobs market now looks Nothing. Like. The Great Recession.
Over a period of nearly five years, from April 2006 to January 2011, employment in residential housing construction collapsed by 45 percent, from 1.022 million jobs to just 557,000. Just imagine that: Nearly half of the people who made their living building housing lost their livelihoods–and, with them, the opportunity to develop additional skills and experience in the industry.
That’s what makes that piece of January’s employment report so important: residential housing construction continued to add jobs, with 31,200 more workers over the past year developing building skills and experience. Not only that, but in December the construction industry actually increased the number of single-family houses started by 909,000, reversing the previous three months of decline.
Whether the overall economy avoids a recession has to do with more than just employment in housing construction, or the jobs market overall. The U.S. needs to see continued growth in incomes, consumer spending, and business fixed investment. Along with that, the country needs to see continued progress in bringing inflation down toward its 2 percent long-term target, so the FOMC doesn’t have to continue putting the clamps on through interest-rate increases. But January’s jobs report shows the U.S. is on a very, very good track.
