The latest “Employment Situation Summary” from the U.S. Bureau of Labor Statistics (BLS) shows that job growth in January was weaker than anticipated, hinting at a cooldown in the labor market as we approach 2024.
Lydia Boussour, a senior economist at EY, pointed out that this data gives the Federal Reserve the chance to be more cautious with any forthcoming interest rate cuts.
Job Growth Insights
The report revealed that the economy added 143,000 jobs during the month, which was below the expected 170,000 and also fell short of the average monthly gain of 166,000 seen throughout the previous year.
Boussour described the current state of the labor market as stable yet somewhat stagnant.
In her assessment, businesses are currently exercising caution in their hiring practices and are reluctant to let go of employees.
This hesitance reflects the prevailing uncertainty in both the economic landscape and policy environment.
Sector Contributions
Strongest advancements in employment were observed in sectors such as healthcare, retail, and social assistance, each contributing over 22,000 jobs.
On the flip side, industries like mining, quarrying, oil, and gas extraction lost 8,000 jobs during this same timeframe, despite having been relatively stable before.
When examining the contributions by sector, the private sector accounted for 111,000 of the new jobs, while government roles expanded by 32,000.
Notably, wages in the private sector saw an increase of 17 cents, bringing the average hourly rate to $35.87, despite a slight dip in the average workweek, which decreased by 0.1 hours, now standing at 34.1 hours.
Federal Reserve Outlook
The unemployment rate, sitting at 4%, is currently the lowest it has been since May 2024, according to the New York Times.
Boussour predicts that job growth will likely stay below last year’s average, with an anticipated rise in the unemployment rate to around 4.4%, largely due to potential layoffs within companies.
Looking ahead, Boussour believes that following this report, the Federal Reserve will adopt a more reserved approach regarding interest rate adjustments.
The favorable conditions in the labor market afford the Fed “the luxury of time,” allowing for thoughtful consideration before making any shifts in monetary policy.
While she foresees a significant reduction in inflation soon and a softening of labor market conditions, she expects the Fed to take a wait-and-see stance.
Initially, Boussour had forecast three interest rate cuts for 2025, slated for March, June, and September.
However, she has now adjusted her outlook, expecting only two reductions, which will likely occur in June and December.
Source: Entrepreneur