CHAPEL HILL – It’s unlikely that the U.S. economy will enter a recession in the first half of 2023.
That’s according to Dr. Gerald Cohen, the chief economist at the Kenan Institute, who delivered a briefing on Friday morning following the release of the latest jobs and employment data from the Labor Department.
“The economy is not slowing,” said Cohen. “A humdinger of a report.”
According to the data, the U.S. economy added 517,000 jobs in January 2023. That was far higher than expectations, which were in the 180,000-200,000 range, according to Cohen.
And though the data shows just one month, the prior months of data were also revised upwards by 71,000 payroll jobs.
All together, that means that the labor market appears to be remaining tight.
“It’s another month, not only does that tell us information about this month, but it also tells us, gives us information about the future,” said Cohen. “Because if we are creating 517,000 jobs in January, we are very unlikely to go into a recession in February, March, April, or May.”
Still, said Cohen, he continues to expect that a recession will come in the future.
“This number is a very positive number,” said Cohen. “I will still retain my view that we will still have a recession.”
Good news is bad news – again
The release of today’s jobs data also included an update on worker’s wages, showing a year-over-year increase of 4.4%.
So while the report is a positive one, in terms of employment numbers and in terms of workers getting wage increases, some may take this good news as bad news.
That includes investors, said Cohen, noting that the latest data is likely to bring bad news in the stock market as investors respond to the data.
“Wage gains aren’t bad, because it’s good for people to get those wages, but we’re trying to avoid a wage-price spiral,” said Cohen. “The Fed is shifting focus from inflation to the labor market, and this has got to give them the heebie-jeebies.”
The probability of the Federal Reserve increasing interest rates at their next meeting increased by about 10 percentage points on Friday morning, according to the CME FedWatch Tool. The probability of a 25 basis point increase at the March meeting of the Federal Reserve Open Market Committee is now 91.5%.
“If they had to make a decision tomorrow, my expectation is that they would raise it by 50 [basis points],” said Cohen. “But they don’t have to make the decision tomorrow.”
Tech occupations still increasing – and so are construction jobs
Despite announcements of job cuts in the technology sector, the U.S. economy is still seeing an increasing number of jobs for which tech skills are in demand, said Cohen.
A report released earlier this week by Challenger, Gray & Christmas found that of the more than 100,000 layoffs announced by U.S.-based companies in January 2023, 41% of those were from the technology sector.
But job growth was “widespread in January,” according to a statement from the Labor Department that was released alongside the jobs report on Friday morning.
The gains were led by 128,000 jobs added in the leisure and hospitality industry, well above the monthly average of 89,000 jobs across all of 2022.
And construction jobs rose in January, as well, by 25,000.
“Construction jobs continue to grow, and that’s because we have a shortage of housing,” said Cohen. “What this means is that the most interest-sensitive sector in the economy, housing, is clearly slowing, but on the jobs front, is less so.”
Problems in the data?
According to Cohen, the latest employment data shows that people aged 55 and over remain out of the labor force. “That’s a problem,” said Cohen. “We need more people aged 55 and older to participate, but we’re not seeing that.”
The labor force participation rate increased in January, but only slightly, by 0.1 percentage point.
And for the Federal Reserve, the data suggests that there may continue to be challenges ahead in balancing the so-called dual mandate to keep inflation low and Americans working.
The market had been pricing in further Fed tightening over the next few months, and then easing later this year, said Cohen.
“The Fed has more to do,” Cohen said.