Friday, February 05, 2016

First take: Weak job growth masks positive signs


Paul Davidson, USA TODAY

1 hour ago

An employment report that was disappointing on its face – just 151,000 jobs were added in January -- was so chock-full of encouraging signs and mitigating factors that economists say it likely doesn’t portend a weakening labor market.

Yet analysts say there are enough mixed signals in the monthly survey to probably lead the Federal Reserve to pause again in March as it considers another interest rate hike after lifting its benchmark rate in December for the first time in nine years.


Employers added 151,000 jobs in January, unemployment rate fell to 4.9%

The Fed’s policymaking committee “will likely desire to see further evidence,” Michael Gapen, chief US economist of Barclays and a former Fed staffer wrote in a note to clients.

Chuck Burton, AP

Hiring slowed in January but other signals in the government report were positive.

Markets didn't appreciate the silver linings, with the Dow Jones industrial average down more than 200 points in late-morning trading.

The 151,000 job gains marked a substantial slowdown from the average 279,000 monthly additions recorded in the fourth quarter. Those totals are from a survey of business and government establishments that feed into the headline job tally.

But a separate survey of households indicated employment increased by an eye-popping 615,000. Even after adjusting for revised annual estimates of the U.S. population, the ranks of workers increased by 409,000, according to Capital Economics. The establishment survey is generally considered a more reliable measure of employment, but the two surveys tend to converge over time and it’s not always clear which is a more accurate barometer in a given month.

Another encouraging signal is that average hourly earnings jumped 12 cents, or 0.5%, and were up 2.5% the past year, and December’s yearly gain was revised to 2.7% from 1.7%. Tepid wage growth of 2% or just above it has been the biggest source of frustration in the labor market’s recovery. But employers finally appear to be raising pay more rapidly to attract and retain workers as the low unemployment rate signals a tighter labor supply.

The average work week also ticked up, to 34.6 hours from 34.5 hours, indicating that employers are putting a bigger load on existing workers and may need to ramp up hiring soon.

Meanwhile, there were plenty of excuses for the lackluster payroll gains in the establishment survey. Unusually warm weather inflated job growth late last year and so some payback in January was expected.

And while the big Northeast snowstorm hit after the Labor Department conducted its surveys, harsh weather still appeared to keep an unusual number of workers at home. The number of Americans who didn’t work because of bad weather increased by 144,000 to 269,000, above the 94,000 median rise over the past 10 reports for January, Jim O’Sullivan, chief US economist of High Frequency Economics, wrote to clients.

And employment among temporary workers and couriers was hurt by sharp slowdowns after the busy holiday season that wasn’t fully accounted for by seasonal adjustments.

“The January employment report was not the disaster the markets were bracing for, or even anticipating,” Scott Anderson, chief economist of Bank of the West, wrote in a research note.

Still, job growth in services sectors that had been strong sputtered, raising concerns that the global economic troubles afflicting manufacturers may be spreading. It “bears watching, but probably just reflects a downshift into a more sustainable pace of expansion,” Anderson wrote.,

Gapen says the development “is likely to keep uncertainty about the state of the economy elevated.” He had expected the Fed to raise rates again in March but now expects policymakers to wait until June.

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