Rex Nutting: The blowout jobs report is actually three times stronger than it appears
With the U.S. economy adding 517,000 additional jobs in January (including 443,000 in the private-sector), demand for labor was a lot stronger than the 187,000 gain that was expected. But, as incredible as that blowout number is, the actual demand for additional labor was roughly three times stronger than it implies.
Breaking news: Jobs report shows blowout 517,000 gain in U.S. employment in January
How can 443,000 net hires by businesses actually understate the demand for labor? Because businesses have two options if they need more labor: They can hire more workers, or they can work their existing staff harder.
In January, businesses did both — in spades.
Lots more hours on the job
It’s a lot easier to add a shift than it is to add a worker, so businesses boosted the average workweek by about 18 minutes, from 34 hours and 24 minutes to 34 hours and 42 minutes. That might not seem like such a big change, but if you multiply it by 132 million private-sector workers, it adds up to a lot of extra hours on the job.
How many hours? About 160 million over the course of the month.
“ The increase in hours worked will help reduce labor supply shortages in exactly the sectors where inflation is most threatening: restaurants, hotel rooms, rents, healthcare and energy. ”
The government says that the total number of hours worked in the private sector rose by 1.2% in January after declining slightly in November and December. If businesses had had to hire new employees to work those extra hours instead of giving their current workers extra shifts, they would have had to create 1.6 million new jobs.
Instead, they hired those 443,000 new private-sector workers, and asked the 132 million workers who were already on the payroll to work longer hours.
Fatter paychecks are good
What this means for working families is good news. The amount of wages paid in January rose by 1.5% (a 20% annual rate), which will go a long way toward helping those families catch up with the higher prices they’ve been struggling to pay. It’s a lot of eggs.
For the Federal Reserve (and thus for investors) this increase in weekly pay is seen as a headache. It means the Fed may choose to ratchet up interest rates a little more instead of cutting them later in the year, as the markets have come to expect.
The Fed is trying its best to slow the demand for labor by raising interest rates. The Fed believes that the labor market may be getting so tight that companies will be forced to increase wages to attract and retain the workers they need, and in turn that would mean that companies would raise their selling prices to cover their wage bills, creating a dreaded wage-price spiral.
As I’ve discussed before, to anyone who’s ever paid or received wages, this theory of wage-push inflation is nuts. It’s not how markets work. Companies don’t raise prices because their costs go up; they raise prices when they can get away with it. They charge what the traffic will bear. Inflation is largely the result of supply shortages, not excessive demand.
Workers aren’t pushing prices higher; they are falling behind. The Bureau of Labor Statistics reported Thursday that real hourly compensation fell a record 3.8% in 2022. That means the purchasing power of hourly wages are plunging, not accelerating.
The Fed ought to be relieved, not distressed, by the increase in hours worked in January, because it will help reduce labor-supply shortages in exactly the sectors where inflation is most threatening: food services and hotel accommodations, construction, healthcare, and mining.
If you want to reduce the cost of dining out, or a hotel room, or a roof over your head, or hospital care, or energy, the best way to do that is to produce more of those things. In many cases, that means putting more labor to work.
Fed chief Jerome Powell promised that his fight against inflation would be painful. But who will bear that pain? Workers have borne the brunt of the impact of higher prices, and now, just when they seem to be pulling their heads above water, they are being told they’ll also need to bear the pain of the cure — unemployment.
The Fed refuses to accept that the cure for high prices is to increase supply, not to decrease demand. A recession can still be avoided if we embrace growth.
Rex Nutting is a columnist for MarketWatch who has been covering economics for more than 25 years.
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