Jobs Market Holds Steady as Economy Grew Slightly Less Than Forecasted Earlier in the Fourth Quarter
Latest reports show an economy grappling with higher interest rates but still growing at a decent pace.
The economy grew in the fourth quarter at a pace slightly below earlier estimates, but at a still healthy 2.7% annual rate while the job market held up last week, according to two reports released Thursday.
The second estimate of gross domestic product for the fourth quarter was a decline from the prior 2.9%, mainly because of a reduction in spending but, in contrast, personal income came in better as a result of higher wages and tax cuts in some states.
Meanwhile, the number of Americans filing first-time claims for unemployment benefits fell to 192,000 from a revised 195,000, while the four-week moving average was 191,250 – up 1,500 from the prior period.
Neither report changes the story that the economy is undergoing a transition from the post-COVID recovery with the labor market still very healthy by historical standards and consumers still spending at a slower pace in the face of higher interest rates.
The jobless numbers stand in contrast to the episodic notices of layoffs in the tech industry and among companies that may have added a lot of workers during the coronavirus pandemic. However, people laid off by those firms may have received severance payments and have yet to file for unemployment, assuming they do not find other jobs.
The Federal Reserve is watching the labor market closely as it is an indicator of inflation forces within the economy. Wages rose during the recovery from the pandemic but they have slowed down recently although they remain elevated compared to what the Fed would like.
A February report from recruitment advertising company Bayard Advertising found that wage growth did cool down in January despite a blockbuster jobs report that showed 517,000 jobs were added in the first month of the year. But while wages grew only slightly overall, Bayard found that in the leisure and hospitality industry average hourly earnings rose by 7% in January.
“The juxtaposition of lower unemployment with slightly higher labor force participation is another boon to the market, which remains largely unshaken by macroeconomic concerns,” Bayard said.
As for the broader economy, the fourth quarter held up reasonably well and models of the first quarter have been rising, with the closely watched GDPNow forecast from the Federal Reserve Bank of Atlanta predicting 2.5% growth.
But the Fed is on a path to keep raising interest rates, “higher for longer” in market parlance, and most economists believe that will ultimately slow the economy further or even tip it into a recession.
On Friday, the government will issue a new report on inflation for January and that has the potential to rattle markets or shed more light on the forces currently affecting the economy.