Research Recap | Surprising Payroll and Wage Gains in the Latest Jobs Report

SAMANTHA AZZARELLO: Welcome to Research Recap our research series here on JP Morgan's Making Sense podcast channel. My name is Sam Azzarello, and I lead content strategy for global research here at J.P. Morgan. Today I'm joined by Michael Feroli, our chief US economist, to discuss the January jobs report. Mike, thanks so much for joining us on the podcast again.

MICHAEL FEROLI: Thanks for having me back.

SAMANTHA AZZARELLO: Let's start with talking about your high-level observations from the report. I want to ask is there nuance to this report or was it just really strong and a blowout?

MICHAEL FEROLI: So it was a strong job report we had 353,000 increase in employment last month. Now, there was some nuance to reading that number as well as some of the details, but we did see the unemployment rate stay at a very low 3.7%. So I think that tells you that this remains a very tight labor market and overall it looks like things are starting off 2024 with pretty good momentum here.

SAMANTHA AZZARELLO: OK then, let's talk about wage growth. Average hourly earnings did jump. Can you walk us through the impact of that on inflation and what your view is on wage growth going forward?

MICHAEL FEROLI: Sure. So we had a 6/10 increase in average hourly earnings last month. We've been averaging about 3/10 or 4/10 of a percent most months recently. Now that being said, there was some potential distortion here, which is we saw a big decline in the average work week. So what often happens in periods when you have bad weather is that salaried workers may work fewer hours, get paid the same, and so their average hourly earnings go up. So these two phenomena, of the decline in the workweek and the increase in the average hourly earnings, may be linked and may be due to some of the bad weather we had last month. That said, when you look at total nominal income or total payrolls, those grew at a pretty steady rate and a rate that is something around 5% nominal labor income. So that still looks pretty good.

SAMANTHA AZZARELLO: Interesting. So going forward, your projections-- you and your team's view-- what do you expect for the labor market?

MICHAEL FEROLI: So we do expect gradual cooling to continue. Obviously, we didn't have that in this most recent report, but we are looking for that to continue and for the labor market to gradually come into better balance as it had been doing for most of the second half of last year.

SAMANTHA AZZARELLO: And then we'll end where we always end, which is implications for the Fed. Does this change your view on Fed policy going forward and when we can expect a rate cut?

MICHAEL FEROLI: Sure, no, it actually probably makes us feel a little more comfortable in expecting our first cut in June. This week Chair Powell brushed off the possibility of a cut in March. We had before today thought there was a pretty good chance it could go as soon as May. I still think that's possible. There's a lot of time between now and May, but right now we're sticking with June and feeling OK about it.

SAMANTHA AZZARELLO: Thanks, Mike, for joining us on Research Recap, looking forward to talking to you again next month. And thank you to our listeners for tuning in. For more research insights, visit jpmorgan.com/research.

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