The job market is booming, with employers adding a robust 257,000 new jobs in January. During the last three months, job growth has averaged a blistering 336,000 per month. Wages are finally rising by more than inflation, and unemployed people who gave up looking for work are finally looking again. "This might just be the most perfect payrolls report ever," economist Justin Wolfers tweeted about the January job numbers.
With luck, the good news will continue throughout 2015. But there are two new factors clouding the outlook.
The first is the depressed price of oil, which has risen back above $50 per barrel but is still half the price it was last summer. The sharp drop in gas prices has put billions back into the pockets of consumers, who are spending about 35% less on gasoline than they were a year ago. But cheaper crude has also led to cutbacks in the energy sector, including thousands of layoffs nobody saw coming just a couple of months ago.
Outplacement firm Challenger, Gray & Christmas tracked corporate layoffs totaling 53,000 in January, which is the highest level in two years. More than 20,000 of those were from energy firms, the most of any sector. A year ago, the biggest layoffs were in retail, while job cuts in energy were inconsequential. With the U.S. rig count continuing to fall, energy-related layoffs may just be getting started.
The energy sector accounts for about 10 million jobs, which is roughly 7% of the U.S. labor force. So even five-digit layoffs seem unlikely to make a big dent in the overall job numbers. Still, there may be harder-to-measure knock-on effects from low oil prices, such as a slower pace of hiring in the energy sector and industries that support it (in addition to layoffs), which have been one of the few unambiguous bright spots in the economy. Manufacturing firms that supply oil and gas equipment could suffer down the road, as well. And energy jobs are among the highest-paying, so a slowdown could cut into overall wage growth, which is already anemic.
Strong dollar hazards
The other fresh risk to jobs is the remarkably strong dollar. Patriotic types sometimes assume a strong dollar is good and a weak dollar is bad, but the sharp appreciation of the dollar against other currencies just produced the biggest one-month increase in the U.S. trade deficit ever. EVER. That means we purchased way more imports—stuff made overseas, by other people—and sold far fewer exports, which are products made here, by Americans.
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