People walk by Goldman Sachs headquarters in Manhattan on December 16, 2022 in New York City. Goldman Sachs, the global investment bank, has announced that it plans on cutting up to 8% of its employees early next year as world economies and markets continue to struggle with inflation, the war in Ukraine and China's Covid policies among other issues.
Why Goldman Sachs says a recession isn't coming
02:18 - Source: CNN Business
Minneapolis CNN  — 

A week that has been chock-full of economic data will be capped off Friday with the first US jobs report of 2023.

Economists estimate that 185,000 positions were likely added in January, according to Refinitiv.

That would be a considerable drop from the 504,000 jobs added in January 2022 and the 520,000 added in January 2021. It also would nearly match the 183,000 monthly average between 2010 and 2019, Bureau of Labor Statistics data shows.

And yet, while the Federal Reserve’s aggressive rate hikes have helped make a dent in inflation and resulted in slower economic activity without stark rises in unemployment, the full effects have yet to come, Fed Chair Jerome Powell warned Wednesday.

“I would say it is a good thing the disinflation we have seen so far has not come at the expense of a weaker labor market,” Powell said in a news conference following the Fed’s first monetary policymaking meeting of the year. “But I would also say the inflationary process you see under way is really at an early stage.”

America’s unemployment rate dipped back down in December to 3.5%, once again matching a 50-year low. It’s expected to tick up to 3.6% come Friday.

Layoff announcements — led by large tech firms — are picking up steam: The 43,651 job cuts announced in December jumped to 102,943 in January, according to a new data released Thursday morning by Challenger, Gray & Christmas.

Still, those spikes in cutbacks haven’t become widespread. New data released Thursday by the Labor Department showed weekly initial jobless claims fell for the fourth time in five weeks, landing at 183,000, which is the lowest weekly total since April.

“It’s a very interesting time where it’s really not clear whether what we’re seeing is a welcome, healthy rebalancing of the labor market — or a more worrying stall,” said Julia Pollak, senior economist with ZipRecruiter.

Beyond the key headline indicators of payroll gains, unemployment and average hourly earnings, here are some other areas of the jobs report that Pollak and other economists will scrutinize when the January jobs report is released Friday morning.

Average weekly hours

In December, the average working week for employees — including part-time workers — was 34.3 hours, according to BLS data.

That’s down from the January 2021 high of 35 hours when the average workweek ballooned as workers were scarce and other employees were forced to pick up the slack and the extra shifts, Pollak said.

“Typically, in good times, the workweek tends to be somewhere between 34.3 and 34.6 hours on average, and somehow it’s slowed all the way down to the bottom end of that range,” she said. “If it continues to deteriorate, that would suggest weakening demand for labor.”

And usually, when demand gets weak, hiring stalls and layoffs and job losses follow, she said.

Temporary help

As businesses recovered from the pandemic, they’ve increasingly relied on staffing agencies and contract employees. That sector started the pandemic with 2.9 million employees, plummeted to 1.9 million during the April 2020 trough, hit a record high of 3.56 million in July 2022 and has declined in each month since.

“The recent decline in temp staffing is mostly the result of a healthy recovery in full-time, in-house hiring,” Pollak said. “But if it falls much below 3 million, I think that would be a warning sign as well.”

Temporary and contract hiring can show where businesses expand and reduce their workforce at the margins, said Sarah House, senior economist at Wells Fargo.

“The fact that we see that paring down suggests that the demand backdrop is starting to soften, and maybe they just don’t see the reason to hire and expand as much as they had previously,” House said.

Labor force participation

The imbalance of labor demand and worker supply has been consistently highlighted by the Fed as a potential sticking point in its efforts to lower inflation. While Fed officials have noted that wages don’t appear to be driving inflation, they have expressed concern that a a low participation rate and the imbalance of worker supply and demand could cause pay to rise and, in turn, cause higher prices.

The labor force participation rate inched up two-tenths of a percentage point in December to 62.3%. Although that came following three consecutive months of declines, the percentage of people working or actively looking for work hovered between 62.1% and 62.4% throughout 2022.

Based on Wednesday’s labor turnover data, that gap grew wider in December: There were 11.01 million job openings, or 1.9 available jobs for every unemployed person that month.

“Long Covid is pretty real, and there’s a sizable share of the population who continue to suffer health effects related to Covid that are preventing them from being able to work,” said John Leer, chief economist with Morning Consult. “Then there’s ongoing child care challenges; we’ve got a lot of folks who retired early; we’ve got limited immigration not where it was pre-pandemic.”

Beyond that and the ongoing demographic shifts of Baby Boomers aging out of the workforce, there’s also possibly some “information asymmetry” that’s occurring, he said.

“There are people outside of the labor market who aren’t working, and they just simply don’t know how needed they are right now,” he said. “And I think that’s a function of being a little removed. The world has changed pretty dramatically over the last two to three years, and it’s going to be difficult to show people that the skills they possess are needed right now.”

The government’s monthly jobs report is scheduled to be released at 8:30 a.m. ET on Friday.