On its face, the most recent jobs report blew away economists’ expectations. According to the January employment report from the Bureau of Labor Statistics, the U.S. economy added a gargantuan 353,000 jobs that month. That’s nearly double what economists expected and enough to keep the unemployment rate steady at 3.7%, just a hair above the half-century low of exactly one year prior. Despite the fastest monetary tightening in four decades by the Federal Reserve, the labor market remains tighter than a drum, with even December’s jobs gains revised upwards to 333,000.
Look under the hood, however, and the picture is less pristine.
There are some minor technicalities that make the headline figures a little more rosy than reality. Not only does the BLS itself caution us that it has slightly altered its method of calculations, leading to numbers that may be above what they would be otherwise, but it also had to revise every other month of 2023 other than December downwards. In total, the economy created 1.3 million fewer jobs than initially reported by the BLS across each month of last year.
But the real, persistent kicker is that the number of jobs created does not directly translate to the number of people newly employed, as the economy has replaced 1.6 million full-time jobs lost with 1.6 million part-time jobs gained over the last half year. And while this is a less-than-positive development for the economy in general and those workers scrambling to make rent with two or three side gigs in particular, that the Fed still hasn’t achieved its goals of plucking people out of the labor force back into it has actually forced investors to wake up to the reality that the Fed will indeed retain higher interest rates for longer.
As readers of the Washington Examiner well know, a vast chasm between the Fed’s stated intentions and investor expectations emerged late last year. While the Fed’s Open Markets Committee predicted in December that it would only pass three rate cuts through 2024, Treasury futures priced in more than twice as many, beginning as early as March of this year.
Despite the repeated assertions of Federal Reserve Chairman Jerome Powell that the central bank is far from declaring victory over inflation, which actually rose in December, it took January’s jobs reports for investors finally to downgrade their expectations. Treasury futures are down to five rate cuts for the year, now with the first cut only coming in May. It’s still far too dovish a projection, but much less delusional than only a month ago.
And it makes sense because the labor market increasing jobs but no material increase of people in the labor force is about the worst-case scenario for the Fed right now, which specifically needs to force those on the sidelines of the job market to reenter it. This significant share of boomers who retired early is why the Phillips curve isn’t reflecting our current reality and at least a partial reason why supply-side inflation has persisted even as the Fed has succeeded at incinerating a historic 5% of our money supply.
CLICK HERE TO READ MORE FROM THE WASHINGTON EXAMINER
Furthermore, the Fed has no affirmative reason to cut rates just yet. Whereas the German economy actually contracted last year, the U.S. economy grew by a robust 2.5% last year, more than any other G7 nation by far and on par with our 2019 performance. The IMF forecasts that the economy will continue to grow above 2% for 2024 even while the rest of the developed world slows down even further.
The Fed’s dual mandate asks that it balance out the countervailing priorities of full employment with price stability. Even though inflation has fallen from its near-double-digit peak in 2022, it remains more than a point above the Fed’s 2% target with little sign of slowing, while the individual workers forced from full-time jobs with benefits into a series of side hustles are less well off than they were before. Until the Fed gets boomers to bounce back into the labor force, a job created will be considered a job created for all intents and purposes, no matter how much lesser that job may be.