Unemployment and the State of The Economy
January's Economic Update
We are back with our monthly update of the economy. As of this morning, the BLS released the December 2023 unemployment data. This data gives us some signals on what the Fed might do and how interest rates might change over the year. If you are wondering what the future might look like, here is a quick recap of where we are as of January 5th 2024.
We will cover
Retail spending and GDP
Next Fed meeting
Areas of concern
Last month’s inflation is down to 3.1%. It is shocking that a year ago inflation was a whopping 7.1% and it didn’t seem like we would be able to get it under control. The Fed’s aggressive rate hikes have gotten us close to their 2% target. I will admit that I was worried that the quick rate changes would “break” the economy, but they haven’t. The Fed has promised us a soft landing and is delivering it. More on that below! New inflation numbers will be released on January 11th. Keep an eye out for those or follow me on Instagram for economic updates throughout the week.
Retail Sales Are Up!
Holiday retail sales are up 3.1% from last year. Consumers spent on clothing, eating at restaurants, but avoided electronics. Spending at restaurants was up a whopping 8%! However, this increase in spending is not adjusted for inflation. Real GDP grew by an annualized 4.9%. Remember, real means after adjusting for inflation. The U.S economy continues to be supported by the consumer.
Labor Market Update
The Jobs Opening and Labor Turnover report released on Thursday show that there are 8.8 million jobs open and the number of hires is 5.5 million. Both, hires and openings, are little unchanged from the previous month. The summary of the JOLTS report is that the labor market is stable and shows no concerns
ADP and Initial Claims
ADP jobs report finds 164,000 new workers hired in December. That’s 34,000 new hires above expectations.Initial jobless claims clocked in at 202,000, lower than the expected 219,000. Both data points indicates that the labor market remains healthy and strong going into 2024.
BLS Unemployment Report
Payroll employment increases by 216,000 in December, for reference expectation was 170,000 new jobs. This number is another indication that the labor market is booming. The unemployment rate is unchanged at 3.7%. We also saw hourly wages increase by 4.1% over the past year. The average hourly earnings of private-sector production and nonsupervisory employees is $29.42.
Next Fed Meeting
The next Fed meeting is scheduled for January 31st -February 1. While I do not expect any changes to rates this meeting, if the economy where to continue on its current path (low unemployment, and decreasing inflation), The Federal Reserve now forecasts interest rate cuts sometime this year that could ease borrowing and boost spending. I am not convinced of this because of political tensions and their impact on cargo pricing. Shipping rates are up to 2,670 per 40 ft container up 25% from a year ago. This might serve as an inflationary pulse moving through the supply chain. Unfortunately, the Fed’s job is made harder by geopolitical disruptions.
The other area of concern is the divide between what the economic data says and how people feel. These “feelings” might eventually lead to changes in spending that will impact GDP. I previously discussed this in the video below. Check it out.
The economy performed much better than what economists expected in 2023. I will credit the Fed for their calculated efforts, the consumer for continuing to spend, a strong labor market, and the 24% gain in the S&P 500 in 2023. There are areas in which I will keep an eye on, geopolitical disruptions to supply chains and consumer sentiment.
It is going to be hard for 2024 to top 2023, but here is to hoping.
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See you next week!