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Broad-Based Job Growth and Wage Gains Moderate

Employers added jobs in January at the fastest pace in almost a year and the unemployment rate dropped to a low last seen at the height of the Vietnam War (1969) and the Korean Conflict (1951-52).

Broad-based: Accommodation and food services added 113,400 jobs in January, followed by professional and business services (+82,000), state and local government (+69,000), health care (+58,200), and retail trade (+30,100).  Most other industries also had solid gains except for mining and logging, utilities, information, and financial activities.

Wage increases moderating, but still elevated. Average hourly wages in January were 4.4% higher than a year earlier, down from a peak gain of 5.9% in March 2021. But a separate measure of compensation costs remains stubbornly high with wages and salary costs up 5.1% and benefit costs up 4.9% from a year-ago.

Labor shortages improving: 38% of employers report their labor shortages are abating and another 12% have no labor shortage.  Further, the share of employers reporting shortages of skilled labor is significantly lower than the record-highs a year-ago, the National Association for Business Economics reported in January. 

However, quits rate shows no sign of moderating and remains particularly high in accommodation and food services and retail trade. Job openings also increased in December.

Five million are still out of the labor force. Most (95%) are not interested in working and are either retired or report a disability. 

Outlook: Strong labor market data will likely keep interest rates relatively high for a longer period of time.  Meanwhile, elevated compensation increases will continue to pressure company profits as inflation moderates.

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Authors: D. Mark Wilson

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