INDICATOR: January Employment Report
KEY DATA: Payrolls: +225,000; Private: +206,000; Construction: +44,000; Unemployment Rate: 3.6% (up 0.1 Percentage point); Wages: +0.2%; Over-Year: +3.1%
IN A NUTSHELL: “Warm weather may have played a role in the strong job gain but the reality is that the labor markets are strong.”
WHAT IT MEANS: Once again, the data seem to contradict the complaints of businesses that it is hard to find workers.
Payrolls surged in January, led by strong increases in construction, healthcare, transportation and leisure and hospitality. Undoubtedly, the unseasonably warm (or maybe new normal, but that is a different story) January helped. We saw that housing starts were up and that was reflected in the strong construction job increase. Transportation and leisure and hospitality were also aided by the better than (old) normal conditions. Previous increases in November and December were revised upward modestly. The annual revisions led to a modest reduction in the total gain in payrolls for all of 2019.
The unemployment rate ticked up in January, but the rise not bad news. Adjusting for the annual revisions that were released in this report, the labor force was up sharply and the participation rate increased. Yes, the weather may have been a factor in those gains as well, but the tight market seems to be drawing more people back into the market. Businesses are looking to hire but available labor has been the constraint. That is still the case when it comes to “qualified” workers, but it seems that help may be the way.
As for earnings, there was good news there as well. Hourly wages were up moderately and weekly hours worked jumped. We should a pretty good rise in the wage and salary component of January personal income.
MARKETS AND FED POLICY IMPLICATIONS: This was a very solid report. Yes, seasonal factors may have played a role in making the headline number look really good, but it is hard to argue that the labor market is not in good shape. Still, we have to read the numbers with some caution. To the extent that the seasonal factor cannot adjust for extreme weather conditions, the unseasonal weather may be hyping the job gains. We will pay for that in the future. For example, if housing starts were overstated because of better than typical building conditions, as we move through the spring, there will not be the need to start as many new homes. That would lead to a weak construction jobs number.
Until it is clear that the hiring was due to an upward shift in the overall economic growth rate, we have to assume that there weaker numbers are coming sometime during the next few months. That could be the case with the participation rate. Yes, the large number of job openings pulled people back into the labor force in January, but the total number of reentrants and new entrants into the labor force were actually lower than in January 2019. In other words, there are ebbs and flows in the data, so don’t make judgments based on one month’s numbers.
Investors are being battered by the uncertainties created by the coronavirus scare that seems to get scarier each day and whose impacts are spreading to more nations and industries. The leisure and hospitality/tourism sector is getting hurt. Anyone taking a flight or cruise to or from China these days? That is spilling over to retail sales of goods tourists typically purchase. China is not likely to be able to live up to its requirements under the new trade agreement until the situation is cleared up and the farm sector is not going to see any new sales for a while. The production of a wide range of goods is down.
The Chinese economy is starting to reel from the effects of the epidemic and if this turns into a pandemic, then the world economy could be harmed greatly. What happens in China doesn’t stay in China. But as I say almost every day when talking about this, we just don’t know.
Joel L. Naroff is the president and founder of Naroff Economic Advisors, a strategic economic consulting firm.
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