US January Employment Report Is Far Stronger Than Expected
January payroll growth came in at a very strong 243,000, and the unemployment rate fell again, from 8.5% to 8.3%. The figures suggest a broad-based improvement in hiring, given an extra boost this month by very mild winter weather.
The headline payroll jobs increase of 243,000 in January was far better than expected. Job gains were broadly spread across the private sector. Manufacturing, business services, healthcare, and leisure and hospitality were the stand-outs. Hours worked rose, as did hourly earnings, giving welcome income support to consumers. And the drop in the unemployment rate to 8.3% from 8.5% reflected employment rising faster than the labor force, not people leaving the labor market.
The anticipated correction in jobs at package delivery firms (which had surged 42,000 in December) never materialized, because the December figures were revised to show a 7,000 drop. So there is now no surge to correct. This means that the December overall gain of 203,000 jobs (almost unrevised from the initial 200,000) now looks more impressive because it relies less on seasonal quirks.
The only caveat: January's weather was exceptionally mild. Just 206,000 workers were unable to work because of bad weather, 224,000 fewer than the January average. But although good weather did give an extra boost, the job gains were far too widely spread to be just a weather phenomenon. The figures suggest a broadly based acceleration in employment growth.
In the payroll details, manufacturing added 50,000 jobs, the best month since last January. Most of the gains came in durable goods, especially fabricated metals, machinery, and motor vehicles and parts. Overall manufacturing production-worker hours rose 1.3%, an exceptionally positive sign for manufacturing output growth in January. Construction was also a plus, adding 21,000 jobs, with all major segments higher. Construction is a sector that very likely benefited from January's mild weather.
Private services employment growth was 176,000, up from 149,000 in November. The leading sectors were business services (up 70,000), leisure and hospitality (up 44,000), and health services (up 31,000). Within business services, 30,000 of the gains were in high-end "professional and technical" services.
The government sector shed 14,000 jobs. Federal employment fell by 6,000 and state and local employment fell 8,000, with all of the losses at the local level (down 11,000), in line with the pattern of the past few years. State jobs actually rose 3,000.
The private workweek was steady at 34.5 hours. A steady workweek combined with the increase in private employment to generate a 0.2% increase in hours worked. Hours worked appear on track for a gain of just above 3.0% annualized in the first quarter, stronger than the fourth quarter's 2.6% gain.
Average hourly earnings rose 0.2% month on month and were up 1.9% year on year (y/y)—still well below the CPI inflation rate, which is at present 3.0% y/y. Overall payrolls (wages multiplied by hours) rose 0.4%, suggesting a similar increase in private wages and salaries during January, helping household purchasing power.
The drop in the unemployment rate from 8.5% to 8.3% brought it to the lowest point since February 2009. The drop was generated by a 631,000 increase in household employment, outpacing a 250,000 increase in the labor force. (Note: the raw employment and labor-force figures show respective increases of 847,000 and 508,000 in January, but these raw data are distorted by the introduction of new population benchmarks that raised the level of both).
The most comprehensive measure of underemployment (U-6)—which includes workers who would like a job but are not currently looking, plus those working part time who would rather work full time—fell slightly, from 15.2% to 15.1%
The picture remains very bleak for the long-term unemployed. The proportion of long-term unemployed (27 weeks or longer) rose to 42.9%, from 42.5% in December. The longer that potential workers remain either unemployed or on the sidelines outside the labor force entirely, the less likely that they will ever get back into employment.
The January labor market report is a big positive surprise. Its upbeat message was reinforced by the subsequent ISM non-manufacturing survey, which showed a big improvement both in its headline index and in employment growth. The figures suggest a broad-based improvement in hiring, amplified this month by very favorable weather. They suggest a virtuous circle may be forming, whereby employment and consumer spending move up together. In combination with better news from Europe, recession fears are easing still further, and growth prospects for 2012 are improving.
by Nigel Gault