The US labour market is beginning to look more vulnerable

COMING just hours after the State of the Union speech, the Biden administration is no doubt trumpeting the news that the US economy added 275,000 jobs in february, which was well more than the 200,000 that economists expected.

White House officials may want to hold off on celebrating just yet. Despite the big beat, the Bureau of Labor Statistics last friday revised lower its estimates of how many workers were added to payrolls in December and January.

All told, some 167,000 fewer jobs were created in those months than first reported. The January revision – which lowered the number for that month by 124,000 – is especially disappointing, because the initial report led many economists to rethink their sour views of the economy.

It’s hard to deny that the labour market looks increasingly vulnerable to economic shocks such as the US federal Reserve leaving interest rates at their highest levels since 2000 for too long in its battle to tame inflation at a time when there are signs that many payrolls are bloated.

In other words, any setback in the economy could see companies shedding workers at a rapid clip, further imperiling President Joe Biden’s already low ratings in an election year.

Sure, the labour market has stayed stronger for longer than most expected. And perhaps it will rebound. But it’s hard to overlook data such as the marked decrease in workers’ hours, from 34.6 in January 2023 to as low as 34.2 this January.

Moreover, only a few sectors – government, healthcare and hospitality – are driving the hiring.

By the way, these sectors are largely insensitive to economic headwinds; the sectors that depend on a strong economy are doing little to no hiring.

government, healthcare, and hospitality accounted for over 78% of all job gains in 2023, up from 48% in 2022.

Another sign of vulnerability is the declining number of workers who quit their jobs. In good economic times, the so-called quits rate jumps as workers take advantage of better pay and opportunities offered by other employers.

In December 2023, 2.9% of all workers quit their jobs, but last month it dropped to 2.1%, the lowest since before the start of the pandemic, a separate government report this week showed.

To make sure they had enough workers on hand in case some walked out the door, there is evidence that many employers over-hired in recent years.

According to Ziprecruiter, an online matchmaker for job seekers and company recruiters, many of its clients report having more employees than they can use given their current level of business activity. Nevertheless, Ziprecruiter’s clients aren’t laying off workers because they hope business will pick up. This point is key, because employers were burned by a worker shortage as the economy quickly recovered in the early days of the pandemic and arewary of being in that same situation again.

That’s why new weekly jobless claims remain low. As for where jobs are being added, government and healthcare are still benefitting from spending bills and insurance premiums typically set a year in advance.

Hospitality is still climbing its way back from a steep downturn during the pandemic. outside of those three insulated sectors, the rest of the labour market saw growth slow from 195,000 jobs per month in 2022 to just 50,000 per month in 2023. January’s report initially appeared to buck that trend, but the february data revised away most of the job gains outside of government, healthcare and hospitality.

This continued weakness is why Americans remain sceptical about claims the economy is on strong footing despite what the White House says. —

White House officials may want to hold off on celebrating just yet. Despite the big beat, the Bureau of Labor Statistics last Friday revised lower its estimates of how many workers were added to payrolls in December and January.