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Defying fears of a pandemic-driven Great Depression and bucking Federal Reserve interest rate hikes as well, the U.S. job market closed out the Biden era at the cusp of full employment, if not beyond it, with steady job gains, growing wages, and enough momentum to possibly rekindle fears of overheating.
With consumers spending and businesses confident, the baseline outlook among Fed officials and many economists is for job market strength to continue. The challenge for the new Trump administration, elected on a promise of better times to come, may be that there’s little room left for improvement and plenty of risk to pushing too hard.
New data released by the U.S. Bureau of Labor Statistics on Friday, including revisions to last year’s figures, showed growth in average hourly earnings has remained above 4% on a year-over-year basis since the fall, beyond the U.S. central bank’s comfort zone for what’s consistent with its 2% inflation target. In addition, a new survey of consumer expectations from the University of Michigan showed a large jump in the year-ahead outlook in February, to 4.3% from 3.3% last month.
As the job market signaled growing weakness last year and the unemployment rate rose, “the question was, are we going to settle in at full employment, or crash through” to yet higher joblessness, as has typically been the case when the unemployment rate rises, Chicago Fed President Austan Goolsbee said on Thursday.
The unemployment rate instead began falling again and hit 4% last month.
That trend coupled with a “broad expanse” of other data makes it feel “like we are settling at full employment,” Goolsbee told reporters at an auto symposium in Detroit. “That’s where you want to settle. It kind of can only get worse … You could overheat, or you could deteriorate. If you could freeze the job market just exactly where it is, that is not a bad spot.”
The latest employment report was the last of former President Joe Biden’s administration. While the handover of the executive branch to President Donald Trump took place on January 20, the survey underpinning last month’s data occurred in the previous week, with Biden still in office.
Due to the COVID-19 pandemic, there was a profound reshuffling of the U.S. job market during Biden’s term, arguably as deep and much faster than the dislocation in heartland manufacturing that followed passage of North American trade agreements and China’s economic opening. The unemployment rate for Black workers hit a record low of 4.8% in April of 2023, though it has increased to above 6% since then and the gap with white workers has widened.
Tight labor markets have given job seekers more leverage to switch positions for higher pay, while immigration is broadly considered to have allowed the overall economy to grow faster than it would have otherwise. Lower-paid occupations have gained ground on higher-skilled jobs while work-from-home arrangements helped women reach record levels of participation.
The latest data showed firms added 143,000 jobs in January, slightly below the 170,000 expected by economists polled by Reuters. But revisions boosted even further the strong job gains seen at the end of 2024, while the unemployment rate was at 4%, the lowest level since May.
That is higher than in 2023, when the jobless rate went as low as 3.4% and was more akin to conditions seen during an employment boom in the 1960s. But the fact that it stopped rising and is now below the 4.2% level that Fed officials regard as consistent with their 2% inflation target is significant — evidence that the central bank has avoided a recession and the excess unemployment that goes with it, but still created enough economic slack to tame a surge in inflation.
The risk now is whether inflation can continue to decline to the Fed’s target. Revisions to last year’s data showed wage gains on a year-over-year basis have stayed at or above 4% since the fall, a level outside the Fed’s comfort zone, while the rise in inflation expectations speaks to policymakers’ fears of losing public confidence in the fight to ease price pressures.
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Manufacturing Focus
Biden had overseen the creation of more than 16 million jobs through January, though more than half of those came in his first 18 months in office when the economy was rebounding from the COVID-19 pandemic. The pace of job creation in the last year has been broadly in line with the rate through the first three years of Trump’s 2017-2021 presidency, prior to a pandemic that left the Republican with a net loss of 2.7 million jobs in his prior term.
Trump and Biden both angled to rekindle manufacturing employment, though they did so through different policies. Both had some success, but each saw factory job growth flat-line and decline as their terms progressed. A stated desire in Trump’s second term is to jump-start the manufacturing sector again by inducing companies to base production in the U.S., or face tariffs on the goods they export into the country.
Both presidents also oversaw healthy labor force gains, particularly in the key 25-to-54 age group. But much more of that growth under Biden came from workers who weren’t born in the U.S., a dynamic that most economists expect to change as Trump delivers on promises to crack down on illegal immigration and take a harder line on accepting new residents from abroad overall.
(Reporting by Howard Schneider; Editing by Paul Simao)
