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The January 2024 Employment Report: Unraveling the Surprising Upswing

In a dramatic twist, payrolls experienced an unexpected surge in January 2024, exceeding expectations with a staggering rise of 353,000 jobs. Coupled with an unchanged unemployment rate of 3.7 percent, this development has left people...

In a dramatic twist, payrolls experienced an unexpected surge in January 2024, exceeding expectations with a staggering rise of 353,000 jobs. Coupled with an unchanged unemployment rate of 3.7 percent, this development has left people intrigued and hungry for an explanation. Today, we delve into the intricacies of the report, shedding light on the factors behind this astounding jump. Brace yourself for a captivating journey through the nuances and dynamics that lie beneath the surface of these numbers.

Keepin’ it Smooth

At our organization, the Council of Economic Advisers (CEA), we employ a technique to enhance clarity amidst the noise by averaging data over longer periods. By employing this strategy, we can mitigate the inherent volatility of monthly job data. Figure 1 below depicts the three-month average of monthly gains, revealing a moderate increase of 289,000 jobs from November to January. Although these numbers fall notably short of the January 2022 average of 483,000 jobs over a three-month period, they still highlight a recent uptick in job growth. It is worth noting that the pace of trend-job growth has decelerated in recent times, aligning with other economic outcomes such as the robust GDP growth experienced in the last quarter of 2023.

The January 2024 Employment Report Caption: The January 2024 Employment Report

Let’s Face It: Defying Expectations

The jaw-dropping boost in job numbers is not an isolated incident. It harmonizes perfectly with a plethora of recent indicators. January's remarkable addition of 353,000 jobs follows an upward revision of 333,000 jobs for the month of December. Impressively, job gains reverberated across various sectors, encompassing both goods and services, as well as the public sector. Nearly two-thirds of private-sector industries witnessed job growth, surpassing the average dispersion rate between 2011 and 2019. Additionally, wage growth remained strong with a monthly increase of 0.6 percent and an impressive 4.5 percent increase over the previous year. While January's strong wage growth may be partially attributed to compositional effects resulting from weather variations, such as increased aggregate hours due to seasonal factors, it does not undermine the overall positive trend.

This consistent outperformance extends beyond job growth. The unemployment rate has remained below 4 percent for the past two years, a feat not achieved since the 1960s. Furthermore, real GDP surpassed expectations in both the last quarter of 2023 and the year as a whole. These remarkable results are tangible evidence of the growth effects resulting from persistently low unemployment, especially through the channel of consumer spending. As illustrated in Figure 3, aggregate compensation and real consumer spending exhibit a strong positive correlation of 0.78, with the latter constituting 70 percent of nominal GDP.

Any Month Can Bounce Any Which Way

While it is enticing to draw sweeping conclusions from a single month's data, it is essential to exercise caution and avoid overinterpreting outliers. Monthly job numbers undergo meticulous adjustments by the Bureau of Labor Statistics (BLS) to account for seasonal fluctuations and separate economically-driven data from temporary hiring and layoffs. Additionally, the BLS employs a births/deaths model to estimate employment changes resulting from new firms entering or exiting the market. Furthermore, an annual benchmark revision, reflected in today's report, ensures accuracy by adjusting the sample-based payroll job numbers based on a census of employment.

Each month, these adjustments, random sampling variability, and external factors like disruptive weather conditions can influence job numbers, potentially deviating from the underlying trend. As the CEA, our approach involves analyzing broader trends and comprehending the intricate relationships between various macroeconomic variables derived from numerous reports. This multifaceted understanding reveals a robust U.S. economy, tirelessly bolstered by a stable labor market that continuously generates genuine wage increases. President Biden's investment agenda has also played a pivotal role, attracting substantial private capital to support manufacturing and construction industries.

In conclusion, while a single data point should not be the sole basis for any conclusive evaluation, today's data undeniably exhibit the sustained strength of the U.S. job market. This resilience lies at the core of the current economic recovery and the principles of Bidenomics. Let us embrace this moment of surprise and celebrate the remarkable strides made in the American job market.

Note: The annual benchmark revision included in today's payroll report revealed a downward revision of 266,000 jobs for March of the previous year, distributed evenly at an average of -22,000 jobs per month from April 2022 to March 2023.