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Key Points for the Week

  • Despite concerns Omicron would undermine hiring, the U.S. economy produced a surprising 467,000 jobs last month.
  • Unemployment increased to 4.0% because labor force participation increased by 0.9%, indicating more people returned to the labor force.
  • Job opening data from December indicate the economy is excelling at producing jobs, of which nearly 11 million remain unfilled.

To say that economists did not have great expectations for the January employment report might be understating their position. It was widely believed that the spread of the COVID-19 Omicron variant would translate into a dismal jobs report.

After some estimates called for U.S. payrolls to decline by as much as 400,000, the labor market shockingly added that many jobs in January – and then some.

Olivia Rockeman, Bloomberg

The United States added 467,000 jobs in January, and the numbers for November and December were adjusted upward too by more than 700,000, reported the Bureau of Labor Statistics.

The U.S. unemployment rate ticked up to 4.0 percent as labor force participation rate – the number of people working or actively looking for jobs – increased. The change in participation reflected updated population estimates in the household survey based on U.S. Census data that boosted the population of 35 to 64 year-olds and reduced the number of people age 65 and older.

The jobless rate among those seeking employment was 3.4 percent for White people, 3.6 percent for Asian people, 4.9 percent for Hispanic people, and 6.9 percent for Black people. Teenagers had the highest unemployment rate at 10.9 percent.

Signs of the economy’s strength during the fourth quarter also showed in company earnings reports. Earnings reflect a company’s profitability. With 56 percent of the companies in the Standard & Poor’s 500 Index reporting fourth quarter earnings so far, “The index is reporting earnings growth of more than 25% for the fourth straight quarter [of 2021] and earnings growth of more than 45% for the full year,” reported John Butters of FactSet.

The jobs and earnings reports paint a picture of robust economic growth in the United States, despite supply chain issues and pandemic variants. Robust economic growth often is accompanied by rising demand for goods and that can push inflation higher, reported Investopedia. In 2021, U.S. inflation rose 7 percent, which is well above the 2 percent target set by the Federal Reserve (Fed), reported Christopher Rugaber of AP News.

Last week’s jobs report likely reinforced the Fed’s commitment to pursue less accommodative monetary policy in 2022. Fed rate increases make borrowing more expensive, which cools economic growth and brings inflation into line.

This Week in the Markets

The U.S. jobs market provided most of the major economic news last week. The latest establishment survey estimated 467,000 jobs were added in January. Regular revisions in the most recent months added an additional 709,000 jobs. The job market appears stronger than expected.

The household survey confirmed the data. Unemployment rose by 0.1% to 4.0%, primarily because more people were looking for work. The labor force increased by 1.4 million, and the household survey indicated 1.2 million jobs were created. That total includes self-employed workers, which aren’t captured in the establishment survey.

Wage increases remain rapid. Average hourly earnings surged 0.7% last month and are 5.7% higher than they were a year ago. Job openings and quit data from December show why. There are still nearly 11 million jobs unfilled in the U.S., and workers are quitting existing positions faster than normal.

The S&P 500 added to last week’s gains and the MSCI ACWI rebounded from the previous week. The Bloomberg U.S. Aggregate Bond Index dropped slightly. The Consumer Price Index is the major economic release this week.

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Back to Work

More Americans are getting back to work. The three major job reports last week indicate U.S. employment remains strong and continues to improve. According to the establishment survey, many more Americans went back to work last month and in previous months than expected. Despite concerns the report might show a loss of jobs, the initial report came in far higher. According to the establishment survey, 467,000 jobs were added in January. In addition to the big increase, the previous two months were also revised far higher. December’s estimate increased by 311,000 to 510,000. November’s estimate jumped by 398,000 to 647,000.

Revisions matter. In the last three months, the economy created more than 1.5 million jobs. Prior to the revisions and using the consensus estimate of 155,000 for the January report, the economy was estimated to have produced less than half that number. Generally, revisions are done for the prior two months, and the whole calendar year is revised once annually. In the 2021 revision, the total number of jobs was cut by 600,000, with the big gains in May-July reduced.

Restaurants and other leisure and hospitality businesses hired 151,000 workers in January, accounting for approximately one-third of the total gains. Many of the downward revisions in 2021 were for restaurants and other businesses. Even with the gains in January, the industry employs only 79% as many people as it did prior to the pandemic. The industries with the biggest percentage gains have been transportation and warehousing. The trend toward more online purchases of physical goods has increased demand. Health care and other services continue to lag in hiring workers back.

The household survey reported people are showing signs of being willing to return to work. The labor force grew by 1.4 million people as labor participation jumped 0.9%. Not all those people were able to find jobs, so the unemployment rate increased marginally from 3.9% to 4.0%. Hourly earnings shot up by 0.7%.

The JOLTS survey showed that even with stronger hiring and revisions, 10.9 million jobs remain unfilled. The mismatch between available jobs and worker skills continues to be wide as 4.6 million more jobs are available than there are people unemployed and looking for work. Labor force dynamics remain volatile. The quit rate held flat at 2.9% but remains well above the 2.5% rate prior to the pandemic.

What do all these numbers mean? First, the economy in 2021 was steadier than previously believed. Formerly strong hiring data in the late spring and summer were revised lower. Weak months, such as January and February, were strengthened significantly. Second, Omicron hasn’t affected the economy as much as early estimates suggested. Finally, wage increases show the inflation trend remains intact even as returning workers may help to slow hourly gains in coming months. Nothing in this report will change the Fed’s plan to increase interest rates in March.

The Dollars and Cents of the Olympic Games

Last week, China won the first gold medal of the Beijing Games with a victory in the mixed short track speedskating relay, beating the Italian team by half a skate blade. The U.S. women’s hockey team outscored Finland, Russia and Switzerland, and a 21-year-old Swede took home gold in men’s moguls.

In many countries, athletes who take home a medal in the winter Olympics receive financial bonuses and other rewards, reported The Economist and Brett Knight of Forbes. For example,

  • Hong Kong promises a $642,000 bonus for a gold medal. (It hasn’t won one yet.)
  • Turkey will reward a gold medalist with $380,000. (It also has yet to win gold.)
  • In Italy, a gold medal is worth a bonus of $214,000.
  • Spaniards who take home the gold receive $112,000.
  • German Olympic medalists were rewarded with a lifetime supply of free beer in the 2016 games.
  • South Korean medalists are rewarded with an exemption from national military service.
  • Slovakians who win individual gold medals receive $56,000, while those who compete on teams receive $17,000 each.
  • U.S. athletes receive $37,500 for a gold medal, $22,500 for silver, and $15,000 for bronze. (U.S. athletes also receive financial support through training grants, healthcare benefits and endorsements.)

The rewards for Olympic medal winners are reasonably clear. However, the rewards for cities that host Olympic games are less so. James McBride and Melissa Manno of the Council on Foreign Relations reported:

A growing number of economists argue that the benefits of hosting the games are at best exaggerated and at worst nonexistent, leaving many host countries with large debts and maintenance liabilities. Instead, many argue, Olympic committees should reform the bidding and selection process to incentivize realistic budget planning, increase transparency, and promote sustainable investments that serve the public interest.

James McBride and Melissa Manno, the Council on Foreign Relations

Before the Tokyo Olympics, the event cost was estimated at $7 billion. Recent estimates of the actual cost are around $28 billion.

Did you Know? This Week in History

February 10, 1996: World Chess Champion Garry Kasparov Loses Game to Computer

On February 10, 1996, after three hours, world chess champion Garry Kasparov lost the first game of a six-game match against Deep Blue, an IBM computer capable of evaluating 200 million moves per second. Kasparov bested Deep Blue in the match with three wins and two ties and took home the $400,000 prize. An estimated 6 million people worldwide followed the action on the internet.

Kasparov had previously defeated Deep Thought, the prototype for Deep Blue developed by IBM researchers in 1989, but he and other chess grandmasters had, on occasion, lost to computers in games that lasted an hour or less. The February 1996 contest was significant in that it represented the first time a human and a computer competed in a regulation, six-game match, in which each player had two hours to make 40 moves, two hours to finish the next 20 moves and then another 60 minutes to wrap up the game.

Kasparov, who was born in 1963 in Baku, Azerbaijan, became the Soviet Union’s junior chess champion at age 13 and in 1985, at age 22, the youngest world champ ever when he beat legendary Soviet player Anatoly Karpov. Considered by many to be the greatest chess player in the history of the game, Kasparov was known for his swashbuckling style of play and his ability to switch tactics mid-game.

Weekly Focus

In order to rise from its own ashes, a phoenix first must burn.

Octavia Butler, American Science Fiction Author

You know you’re getting old when you get that one candle on the cake. It’s like, ‘See if you can blow this out.’

Jerry Seinfeld, American Comedian