The Labor Department’s monthly jobs report can be hard to interpret, especially as Covid has blown up analysts’ models that measure the economy.
But the January report, released Friday, is one to pay attention to. The headline result — 467,000 jobs added last month — came in far better than most economists had expected. The report also revised previously ho-hum figures for November and December, showing that the labor market has been chugging along at a healthier clip than we previously thought.
That’s good news, but it could set off a chain of events that directly affect your wallet.
1. Debt will soon be harder to pay off
If there were any doubts lingering about whether the Federal Reserve feels confident about raising interest rates, the January jobs report just vanquished them.
“The Fed has been handed a late Christmas gift,” said Johan Grahn, vice president and head of ETFs at AllianzIM. “This is a free ride for them to raise rates … If the Fed ever looked to do something bold, now would be the time.”
The central bank has been loath to scale back its economic support too quickly, fearful that the economy was fragile. Even as inflation, partly fueled by the Fed’s easy-money policies, soared to nearly 40-year highs, the Fed has kept its foot on the gas, wagering that the risk of higher inflation was more tolerable than the risk of careening back into recession.
But now, it’s hard to imagine a better time to start tapping the brakes. The Fed has signaled it’s likely to raise interest rates in March, followed by several more increases throughout the year, to help bring inflation down. Given the strong labor market and solid consumer spending, it’s increasingly clear the economy can handle it.
What that means for your wallet: Loans are getting more expensive, which is bad news if you’re trying to pay off credit cards, car loans or student debts that have variable interest rates. Even fixed-rate mortgages, after falling to historic lows, have been creeping up in recent weeks in anticipation of higher interest rates. Of course, it also means your savings rate will go up, but it’ll hardly feel like a windfall.
2. Prices could stop surging
Soaring prices and shortages have been a headache for just about everyone for the past year, but when the Fed raises rates, it’s effectively curbing consumer demand, which should stop prices from surging out of control. (Yay!)
Prices have been rising too fast — inflation rose 7% between December 2020 and December 2021, a nearly four-decade high. Raising rates will nip that in the bud.
This won’t happen overnight, though. The Fed is likely to raise interest rates in small increments, likely a quarter of a percentage point at a time, over several months. The impact of those increases will take months to percolate through the economy.
3. Need a new job or a raise? Now’s the time
What the January report tells us, among other things, is that the economy didn’t so much as shrug at the Omicron variant. Part of the reason the report surprised economists is because many had overestimated the impact the highly contagious variant would have on the job market.
“The economy has moved on from Covid. Most people have learned to live with it,” said JJ Kinahan, chief market strategist with TD Ameritrade.
At the same time, people are still quitting in droves. Last year, a record number of people quit their jobs, while US employers had more positions to fill than ever before. In December, 4.3 million Americans quit, down just slightly from the record 4.5 million in November. For context: Before the pandemic that figured averaged around 3.2 million a month.
For the most part, those people are quitting for better jobs. Workers continue to wield unusually strong leverage. Job openings stood at 10.9 million in December, compared a high of 11.1 million recorded in July.
4. Your 401(k) may take a hit
The market turmoil we’ve seen over the past month could continue, especially if the strong economy prompts the Fed to raise rates more aggressively. Higher interest rates make it harder for companies to borrow money and undercut profits, which Wall Street hates.
That news is likely more troubling for wealthy households because they have more exposure to the stock market than others. Yet stocks represent a greater chunk of the average American’s net worth than they used to. The bottom 50% of US households held $260 billion in stocks and mutual funds, comprising 2.9% of their wealth, according to the Fed. That’s up from $90 billion and 1.8% of their wealth a decade ago.
– Paul R. La Monica, Anneken Tappe and Matt Egan contributed to this report.
