Robust jobs bounce in January
Bottom line After a disappointing December, nonfarm and private payrolls enjoyed a much stronger-than-expected rebound in January, with gains of 225,000 and 206,000, respectively. The mild winter weather to date and the recent resurgence in the housing market certainly contributed as construction added 44,000 jobs last month, its strongest growth in a year. In addition, the labor force participation rate surged to a 7-year high of 63.4% and annualized wage growth rose 3.1%.
On the negative side of the ledger, manufacturing lost 12,000 jobs last month, largely due to Boeing’s ongoing problems, and the household survey declined by 89,000 after a solid gain of 267,000 in December. Moreover, the unemployment (U-3) and labor impairment rates (U-6) both consolidated from cycle lows, largely due to the surge in the participation rate.
With January’s private ADP payroll report posting its strongest gain (291,000 jobs) in nearly five years and with the sharp decline in initial weekly unemployment claims over the past two months, we expect the labor market to remain strong over the course of 2020. These positive trends should accelerate as we approach midyear, as the U.S. begins to ship more commodity exports to China. Other boosts likely would come if the FAA clears Boeing’s 737 MAX jet for flight and if Wuhan coronavirus fears recede.
Strong ADP & claims lead the way Private-sector hiring enjoyed a powerful surge in January, adding a much stronger-than-expected gain of 291,000 jobs (its best reading since May 2015), compared with consensus expectations for a gain of only 157,000 and December’s actual increase of 199,000. Initial weekly unemployment claims (an important leading employment indicator) spiked to a 2-year high at 252,000 for the week ended Dec. 7—30% higher than the 49-year cycle low of 193,000 in April 2019. But two months later, on Feb. 1, claims fell sharply to only 202,000.
Strong payroll gains & revisions January payrolls added 225,000 jobs, another stronger-than-expected figure. Consensus was for gains of 165,000, and our much more constructive forecast was for 266,000. November was revised up by 5,000 jobs to a final gain of 261,000, with December revised slightly higher by 2,000 to 147,000. Government hiring in January rose by 19,000, led by local gains of 20,000 and a loss of 13,000 state workers. Consequently, private payrolls leapt by 206,000 in January, well above consensus estimates of 155,000, with combined modest upward revisions of 7,000 in November and December.
Household hiring decreases The admittedly volatile household survey (a leading employment indicator) lost 89,000 jobs in January, in sharp contrast to December’s powerful gain of 267,000. This series has now slipped in two of the past three months, with November’s loss of 8,000. That compares with solid gains of 246,000 in October and 403,000 in September.
Construction hiring rises, manufacturing declines Due to an unseasonably warm January and a resurgent housing market over the past six months, the construction industry leapt with the addition of 44,000 jobs in January (its strongest pace in a year), compared with a downwardly revised gain of 10,000 in December (originally reported at 20,000) and a loss of 2,000 in a weather-impaired November. Construction had added a more typical 17,000 jobs in October and 16,000 in September. Between GM last fall and Boeing this winter, manufacturing has been struggling, losing workers in three of the past four months. The manufacturing sector lost a larger-than-expected 12,000 workers in January (consensus loss of 2,000), a loss of 5,000 in December, a gain of 58,000 in November and a loss of 41,000 in October, largely due to 48,000 striking GM auto workers leaving and then returning.
Participation, unemployment & labor impairment rates all increase In January, the labor force participation rate (the share of working-age people in the labor force) leapt to a 7-year high (January 2013) of 63.4%, up from 63.2% in December. Because of this surge, the unemployment rate consolidated a tick higher to 3.6% in January, after matching a 50-year low at 3.5% in December. Similarly, the labor impairment rate rose to 6.9% in January from 6.7% in December, an all-time (25-year) low. We expect both to continue to grind lower in coming months.
Wages rise, hours worked flat Average hourly earnings rose a weaker-than-expected 0.2% month-over-month (m/m) in January. That was twice the pace of wage growth in December and down from healthy 0.4% gains in November and August, which matched a 5-year high. The year-over-year (y/y) gain in January rose to a stronger-than-expected 3.1%, versus an upwardly revised 3% in December. But that’s below the 3.5%, 10-year high from last February, July and August. The average private workweek for all employees was unchanged for the third consecutive month at 34.3 hours, down a tick from August, September and October. A change of 0.1 hour worked theoretically adds or subtracts 350,000 jobs to or from the economy.
Retail pink slips After a strong 4.1% y/y increase in Christmas sales, retailers shed 8,000 jobs during January, after adding an upwardly revised 45,000 in December, the strongest reading in nearly three years. That compares with a loss of 14,000 in November and gains of 22,000 in October and 9,000 in September. There were losses in each of the prior seven months.
Temps remain choppy Temporary help (a leading economic indicator) lost 2,000 jobs in January, after adding 6,000 in December and 3,000 in November, losing 6,000 in October, and gaining 7,000 in September.