Last Friday the Department of Labor announced that the unemployment rate fell from 6.7% to 6.3% in January.
JP Morgan, one of the Portfolio Strategists we utilize for client accounts, wrote the following today about this report…
The January jobs report showed moderate improvement in the pandemic-challenged labor market, with modest job gains partially offsetting losses from the prior month. Total nonfarm payrolls increased by 49,000, in line with consensus expectations. Notable gains occurred in professional and business services, education and government, although sizable losses occurred in leisure and hospitality, retail, health care and transportation and warehousing. This reverses a trend of improving job growth in the summer and autumn in some of the hardest hit areas by the pandemic. The unemployment rate fell to 6.3% from 6.7%, with the number of unemployed people falling to 10.1 million. Wage growth decelerated from last month, with wages rising 0.2% m/m for all workers and 0.1% m/m for production & non-supervisory workers, up 5.4% y/y for both. Despite positive job growth, this month’s report reflects the challenges to a meaningful labor market recovery while the pandemic is still raging and colder weather stymies outdoor services. However, improving vaccination rates and declining cases should lead to modest job gains ahead. Once the pandemic fades substantially later this year, job growth should improve markedly. Until then, unemployed workers may have to rely on fiscal support as a bridge to better times.
Some think the economy is bad because unemployment is still high. But is is important to remember that unemployment is a lagging indicator. That means that this metric falls after the economy is healing, not before. It is normal that AFTER a recession that unemployment lowers slowly. In the chart below from 1994 to the present, the shaded gray areas are recessions. You can see unemployment rising during the recessions, but then slowly receding as economic growth returns to the economy.