Labor market: January hiring contained ‘aberration’ due to weather, economist says

ADP Chief Economist Nela Richardson joins Yahoo Finance Live to discuss private payroll growth, December JOLTS report data, the state of the labor market, and the outlook for the Fed.

Video transcript

- Private sector job growth that slowed in January with the US adding 106,000 jobs in January, as record floods and back-to-back storms weighed on employment. ADP's Chief Economist, Nela Richardson, joins us now to help us understand January's national employment report. Always a pleasure to grab some of your time here. If you were to describe this month in one word, what would that be? And how does that set us up as we go into February here and kick things off?

NELA RICHARDSON: I've already failed the first test. I couldn't describe it in one word. It was a weak week and a [? sound ?] month. That reference week that we use to produce the monthly report, the same reference week that the BLS uses that includes the 12th day of the week, happened to be the week where we saw a lot of weather disruptions that played out that week. But if you look at the rest of the month, it's solid hiring. It was [? nearest ?] the hiring we saw in November and December. Strong, solid growth for this point in the recovery. And it also reflects where we were heading into December. According to the latest JOLTS data, still strong hiring demand.

So this week was an aberration. And a relatively solid month for January in our view.

- Hey, Nela, it's Julie here. You mentioned those JOLTS numbers, which were surprising at 11 million still and rising. Just on an anecdotal basis, I go into retailers. Not a lot of people on the floor. It feels like many of the openings and many of the gap, if you will, in hiring is still happening on the services side, on the retail side, on the hospitality side of restaurants, et cetera. Is that what you're finding in your data?

NELA RICHARDSON: That's what you can actually see in the data. You can see it in this report. Basically, work that you typically do outside, work that is susceptible to January weather, was down. So we saw weakness in construction. We saw weakness in transportation. We saw weakness in natural resources, in mining. What was up, Julie, is what has been up in terms of the industries all 2022, leisure and hospitality. You do that inside a lot. That was a really robust sector. It continues to really lead the jobs market. And you see that.

So there is shortages still. You're seeing it in that sector, certainly in the service sector. It's the services where we're seeing the most build up in wage price inflation. And it's services that were hardest hit by the pandemic.

- Given the sluggish we are seeing in the economy right now, Nela, do you still expect that seasonal boost in hiring once the weather improves?

NELA RICHARDSON: Yeah, well, we already saw it. We already saw it for January. We saw one week that was weak in terms of hiring. But it was couched between some strong weeks. So yeah, we think that continues into January and February.

Now, I do think that as the economy starts to slow, we'll start to see and we've already seen a deceleration in job gains over the course of 2022. I think we get even steadier and slower as we round the corner into the new year. But those slower job gains don't bode right now into softness in the economic front. It just means that the economy is normalizing.

What's still very abnormal is wage growth. And if you look at our pay insights data, you see that wages are still way above what the Fed would consider consistent with a 2% target. They've got to be worried about the labor tightness, especially with the JOLTS report, and wages that have moderated, yes, significantly, but are starting to plateau at these higher levels.

- And so with that wage growth that we'd seen in this most recent month, do you believe that employees are still trying to offset any pain that they might be feeling in their purchasing habits or in their expenditures by looking for jobs that give them the ability to kind of outpace the rate of inflation in the core things or basket that they may purchase on a regular basis?

NELA RICHARDSON: If you look at that JOLTS report, they got a new breath of air in terms of maybe what's open and what's available in terms of new job opportunities. In fact, we saw workers who switched jobs in the month of January see, again, a bump up in pay after that pay was trending down. So there's still gains from job switching in this market.

What's important about inflation, even as it moderates, is those prices don't go down, except for gas prices. They've gone down. But generally, when inflation goes up in our core basket, when it comes to housing, or clothing, or any of those core fundamentals, medical care, they only grow at a slower rate. But the prices are already there. So what that means for the worker is they're still in a position to need more money to keep up with their standard of living that they experienced last year.

Real wages have declined in the face of inflation. And it means that workers are still trying to keep up. And so yes, I do expect that searching to come up even in this inflationary environment to continue.

- ADP Chief Economist, Nela Richardson, always a pleasure to get some of your time and insights, and help break down this report. Thank you.

NELA RICHARDSON: Thanks for having me.