Kiplinger Jobs Outlook: Strong Labor Market Will Return to Normal

Job gains are bound to slow, but the labor market will not be tanking.

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A strong jobs gain of 275,000 in February was balanced by a large downward revision for January, from 353,000 to 229,000, according to the . The usual suspects contributed the most to the February gain: healthcare, food service and local governments. But retail and e-commerce delivery also got a boost from warmer weather after January’s snowstorms. Other sectors contributed moderately to overall hiring, except for manufacturing, which weakened slightly. Temporary help, which tends to be related to manufacturing, also was a negative. 

The unemployment rate picked up to 3.9% as more people came into the labor force to look for work. That is actually a sign of a healthy labor market, though it also indicates that job seekers are not being snapped up quickly anymore.

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There are other cautionary signs: In the separate survey of households, full-time employment has declined for three consecutive months, while part-time employment has risen. The smaller household survey frequently diverges from the business payroll survey for a time before synching up again, so the divergence may not be important. But it bears watching.

Annual wage growth was 4.3% in February and has been roughly the same for the past five months. Pay rises should be dropping below 4% in the next couple of months, and will end the year at about 3.6%. Wages of nonsupervisory employees are growing slightly faster, at 4.5%, but should slow to about 4% by the end of the year.

February’s strong jobs report won’t prevent the Federal Reserve from cutting interest rates this year, but it does likely push that move back to June. The Fed will be heartened by the December-January downward revisions, which signify that the labor market is gradually cooling, with smaller wage increases helping to lower inflation. The Fed will be looking for a gradual slowing of both job and wage gains in the next few months, which would allow it to make a rate cut in June. If those trends don’t materialize, then rate cuts could be delayed further. 

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Staff Economist, The Kiplinger Letter
David is both staff economist and reporter for The Kiplinger Letter, overseeing Kiplinger forecasts for the U.S. and world economies. Previously, he was senior principal economist in the Center for Forecasting and Modeling at IHS/GlobalInsight, and an economist in the Chief Economist's Office of the U.S. Department of Commerce. David has co-written weekly reports on economic conditions since 1992, and has forecasted GDP and its components since 1995, beating the Blue Chip Indicators forecasts two-thirds of the time. David is a Certified Business Economist as recognized by the National Association for Business Economics. He has two master's degrees and is ABD in economics from the University of North Carolina at Chapel Hill.