Healthy labor market continues to beat expectations, boost economy

Robust jobs creation. A prolonged stretch of low unemployment. Hardy wage gains. The booming U.S. labor market has continued to beat expectations in early 2024, benefiting workers and the economy, even in the face of towering interest rates.

Economists predict that the February jobs report, to be released Friday morning, will show the 39th straight month of job gains, with employers adding around 150,000 jobs. That’s significantly slower than last month’s staggering 353,000 job gains but enough to keep the economy in solid shape.

“There really hasn’t been any recent data to suggest that there’s been any particular softening in the jobs market,” said Aaron Terrazas, chief economist at jobs site Glassdoor. “Economists and many others have been predicting a slowdown again and again. And again and again that has failed to materialize.”

As the election year enters full swing, President Biden has touted the booming jobs market that has repeatedly defied expectations of a recession, even as interest rates have climbed, weighing on some parts of the economy to bring prices down. With inflation continuing to ease, Americans’ gloomy feelings about the economy have started to lift.

A year ago, many analysts had predicted that the Federal Reserve’s campaign to raise interest rates to ease inflation would lead the economy into a painful downturn, but that hasn’t happened. The unemployment rate has remained below 4 percent for two years, the longest run since the 1960s. Layoffs remain lower than pre-pandemic levels.

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For the past six months, a few service-related sectors — health care, government, and leisure and hospitality — have been buoying the labor market, as other sectors have retracted or barely grown. Health care in particular has outpaced other industries because of the growing needs of the aging baby boomer population and more Americans utilizing their health insurance as they stay put in their jobs for longer periods.

Meanwhile, the public sector has grown as government coffers have filled up and gone toward raising wages. Leisure and hospitality has also benefited from baby boomers aging into retirement and spending more on travel and dining out.

The resilience of the labor market has been aided by the recent expansion of the labor force, particularly the strong return of women who left their jobs during the pandemic and an influx of immigration to the United States. Economists say the arrival of immigrants in particular has been a key factor in closing severe gaps in the economy that have threatened the country’s ability to recover from pandemic shutdowns.

Among them is Ricky Chiu, who fled Hong Kong for Texas in late 2021 after authorities had arrested him for participating in a mass demonstration against the Hong Kong government, causing him to fear further retribution if he remained, he said. An asylum seeker, Chiu said he now works a job in information technology at a law firm in Houston, where he is “able to have a normal life,” he said.

But he worries about the perception that asylum seekers like himself “are leeching off the resources of this country.” “I would say we have a net positive effect on the job market,” Chiu, 37, said. “We are contributing to this society.”

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The labor market has cooled since its peak during the reopening of the economy following covid-19 lockdowns. Workers have stopped quitting their jobs en masse. Employers have eased off hiring. And there are now roughly 1.4 job openings for every unemployed worker in the United States. That ratio gives workers continued leverage in the labor market but is down from the two job openings for every unemployed worker last year.

Economists do expect the unemployment rate to climb in 2024 as the full impact of high interest rates ripples through the economy — with a recent Congressional Budget Office report projecting that unemployment will rise to 4.4 percent by the end of 2024. Other data shows that some employers who had been proceeding cautiously are beginning to resume investing in their workforce in anticipation of the Federal Reserve cutting interest rates in the summer.

Some economists worry that recent job gains that are concentrated within only a few sectors and could spell trouble on the horizon, as the broader economy becomes more vulnerable to shocks within a specific sector.

“Is it enough to be carried by these sectors or do we need gains that are more broad-based? That’s the question that needs to be answered,” said Diane Swonk, chief economist at KPMG. “I’d like to see more broad gains before I feel comfortable.”

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The construction industry, which is vulnerable to interest rate hikes, has seen moderate growth at best over the past year, with certain niches within the market feeling the pinch more than others.

At Forrest Street Builders, a high-end custom home builder in Denver, business has been slow this winter. Ian Price, the company’s president, said that’s because his typical clients are in their 40s and 50s, largely already homeowners, and less willing to scale up to new, larger homes “because of interest rates” — instead opting for remodels.

But the slowdown has also meant it’s easier to hire construction workers, Price said, without having to pay more to attract them from other firms. This month he posted two construction positions online and received 90 job applications within a few days.

“During covid, we had to make sure we held onto the talent we had and up our wages because McDonald’s was paying $20 an hour and because of inflation,” said Price. “[Now] we don’t have to offer a premium off of the bat like we used to.”

Source: www.washingtonpost.com

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