The week in review
- Unemployment rate decreased to 3.5%
- Mfg./Services PMI: 46.2/44.7
- Hourly earnings: +0.3% m/m; +4.8% y/y
The week ahead
- CPI
- 4Q22 S&P 500 earnings
Thought of the week
The U.S. labor market was a shining star in 2022 against a dim economic backdrop of tighter financial conditions and recession fears. Although real GDP normally outpaces payroll employment, due to rising labor productivity, payrolls grew more rapidly than real GDP growth in 2022, flipping the script on this dynamic.
Real GDP growth averaged 2.02% per year from 4Q99 to 4Q19, with payroll employment contributing 0.75% and output per job contributing 1.26%. However, after a pan-demic-induced collapse in early 2020, fiscal stimulus and reopening allowed GDP to accelerate rapidly in the second
half of 2020 and in 2021, while COVID fears, generous unemployment benefits and weak demographics held labor supply in check. As a result, payroll growth slowed relative to GDP growth. From 4Q19 to 4Q21, nonfarm payrolls fell by -0.97% annualized while GDP grew by 2.04% annualized, leading to a sharp surge in productivity among existing workers and a dramatic surge in job openings. As the economy slowed in 2022, some of this excess demand for labor was relieved. However, last week’s economic reports still showed a very high 1.83 job openings at the end of November for every person unemployed in the second week in December.
While we expect both job openings and job growth to fall in the months ahead, persistent excess demand for labor should result in continued job gains, moderate wage growth and a low unemployment rate well into 2023, helping the U.S. economy avoid a deep recession and, perhaps, avoid a recession altogether.
