The US labor market is recovering health care jobs
The US economy blew past forecasts and 353,000 jobs were added to non-farm payrolls to the labor market in January, and previous expectations indicated only 185 thousand. EY Chief Economist Gregory Daco points to the importance of job growth in the healthcare sector: “We lost a lot of jobs during the Covid-19 pandemic. We are getting those jobs back, very gradually, but this is a structurally constrained area.” Where you feel progress is appropriate.”
Sitting down with Yahoo Finance, Daco also comments on what Friday’s jobs data means for Monetary policy of the Federal Reserve And how productive AI could impact future jobs data.
For more expert insight and the latest market action, click through here Watch this full episode of Yahoo Finance Live.
Editor’s Note: This article was written by Luke Carberry Maughan.
Sean Smith: Once again, the US economy gained 350,000 jobs in January, beating Street forecasts, and the previous two jobs market readings were revised to the upside. Wage growth was also much hotter than the newspaper expected.
But there is one key number that can be considered a bit disappointing. This is labor force participation. We want to bring in Greg Daco. He’s chief economist at EY.
Greg, great to have you here. So let’s focus first on labor force participation because we can look at these headline numbers, and your immediate reaction will be that this jobs market is a lot hotter than we initially expected.
Is that labor force participation — the fact that we haven’t seen a sign of upside — does that maybe throw a little bit of cold water into the initial reaction?
Greg Daco: Well, I think we always have to be a little bit careful and look at all the data, not just the headlines in terms of payroll. The payroll was very strong. But we knew there would be some seasonal impact. I think that was part of the picture in terms of professional and business services. He was also part of the picture at the state and local level.
But when you look at some of the other readings, the labor force participation rate has been flat. We have also seen a significant reduction in working hours. This has brought working hours back to their lowest levels since the pandemic. This is one area we should pay attention too.
Brad Smith: And so, when we think about where — and we just got the breakdown of the entire sector, where people are still making their way back into the workforce. What sector would you most encourage us to continue looking at? Because there are some longer trends that we’ve seen in the recovery of leisure and hospitality.
There are some longer trends we’ve been waiting for in healthcare, too. But if there is one notable sector that we can hang our hat on and say, it’s good for employers to get back there. What is this?
Greg Daco: It’s health care.
Brad Smith: Yes.
Greg Daco: Health care has been the main sector that has been structurally undersupplied in terms of labor supply. This is one of the sectors that is still rising strongly. It has been the largest contributor to job growth over the past six months. This is very positive because we have lost a lot of jobs during the coronavirus pandemic.
We are restoring these functions very gradually. But this is a structurally constrained area, where you see progress being quite favourable. I would like to point out another thing that’s important to keep in mind as we think about this labor market and what it means for the Federal Reserve, it’s important to note that wage growth has actually accelerated. But it accelerated in the sectors that saw the strongest job growth.
Professional and business services – part of which was seasonal. So I think it may be withdrawn in February. And then health care. Healthcare is a structurally constrained sector. So it’s the pressure from one sector that really outweighs the rest.
The key question is: Will we achieve more productivity growth? This would lead to non-inflationary growth, which is what the Fed wants.
Sean Smith: So maybe when you look at those very hot numbers, when it comes to wages, maybe it won’t be more of an issue there than the Fed or really just in terms of getting inflation back to the 2% narrative. We were talking about the Fed’s 2% target there.
A print like this probably won’t complicate the matter as much as you initially expect.
Greg Daco: Well, it puts the Fed in a bit of a difficult position. But remember that the Fed framed its statement in a negative tone. It is unusual for Fed policymakers to do this. We will not cut interest rates until we have greater confidence that inflation will stabilize sustainably at the 2% target, or move towards the 2% target.
This is very different from a positive statement. Therefore, they have the option to postpone for a longer period of time, if the data requires a longer period.
Brad Smith: Then finally, while you’re here. You’re talking about productivity. A lot of people are trying to figure out what generative AI will do for productivity versus what humans do for productivity. How does this appear on the scale?
Greg Daco: Well, I think it’s going to take a while before we actually see that in the numbers. But Gen AI is one of those technologies that will impact us very quickly. It will likely be everywhere. We’re doing a lot of research on the economic impact of AI.
We believe that about two-thirds of jobs in the United States are likely to have moderate to high exposure. The remaining third generation will not necessarily be immune to the AI gene. But we will have some jobs that are still vulnerable to AI.
I think we have to keep in mind that the new generation of AI in raising productivity will help on the supply side, and it will also alleviate some of the inflationary pressures by increasing our ability to do our work.
Sean Smith: Good. Greg Daco, always great to have you around, especially on a day like this. Thank you so much for joining us here in the studio.
Greg Daco: Thank you.
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