February 2, 2024

The unemployment rate was unchanged in January at 3.7% after having been unchanged in December..  In December the labor force declined by 175 thousand..  Employment fell by 31 thousand.  As a result, the number of unemployed workers declined by 144 thousand  and the unemployment rate was unchanged at 3.7%.   In contrast, payroll employment rose by 353 thousand in January compared to the 144 thousand decline in civilian employment.  We would not draw too many conclusions about the drop in civilian employment in  January.  This series tends to be very volatile, and in the holiday season massive changes in employment occur.  If jobs in December and January  are significantly bigger or smaller than expected, there will probably be an offsetting change in subsequent months.

How come the two estimates of employment are different?  First, the two are figures are derived from separate data streams.  The payroll number is calculated from employment numbers reported by a large number of employers across all industries.  Employment for the unemployment rate calculation is derived from knocking on doors and asking people if they have a job.  It is known as the  household survey.  It tends to be more volatile than the payroll employment data.  One conceptual difference is that the household survey includes people who are self-employed which would not be captured in the establishment survey.  In the end, there is always monthly noise between the two series.  Over time the two surveys seem to show roughly comparable gains in employment.

In the wake of the Fed’s series of rate hikes the labor market is doing particularly well.  The Fed would like to see some weakness in the labor market to slow the rate of increase in wages.  Thus far the labor market has softened only slightly.  The Fed considers full employment to be 4.0% which means that at that level everybody who wants a job still has one.  Given that the unemployment rate is below the full employment threshold there will be continuing upward pressure on wages as firms bid against each other to get the required number of workers and as workers and unions try to offset some of the decline in real earnings that has occurred over the past two years..

While the official rate is the most widely used, the reality is that the official rate can be misleading because it does not include “underemployed” workers.  There are two types of “underemployed” workers.  First, there are people who have unsuccessfully sought employment for so long that they have given up looking for a job.  Second, are those workers  that currently have a part time position but indicate that they would like full time employment.  The total of these two types of underemployed workers are  “marginally attached” to the labor force.  The number of these workers has risen in recent months as some people appear to have given up looking for a job.

To incorporate the impact of these workers who are marginally attached to the labor force, we should probably be focusing on the broader measure of unemployment which rose 0.1% in January to 7.2% after rising 0.1% in.December.   Full employment for this measure of unemployment is somewhere around the 8.0% mark.

Given the steady gains in employment we look for GDP growth of 1.8% growth in the first quarter.

Stephen Slifer


Charleston, SC