Jobs Day Surprise…And Disappointment

By Robert Hughes

The Bureau of Labor Statistics released a January employment report this morning that has both surprises and disappointments. On the positive side, job creation was stronger than expected, showing a net gain of 227,000 jobs. Even better, the private sector added 237,000 jobs, while the government sector posted a 10,000 decrease for the month. This report included regular annual revisions, and on balance, the revisions were small. That revised data now show the U.S. economy added an average of 195,000 jobs a month over the past year.  Overall, a pretty impressive performance.

On the negative side, however, the long-awaited acceleration in hourly earnings seemed to slow a bit last month. Average hourly earnings rose at a 2.5 percent rate over the past year, the same as in December, but December was originally reported as a 2.9 percent increase. That disappointment does have a silver lining.  While better wage growth is likely to support future spending and economic activity, the slower pace of wage growth means less concern over cost-push price increases.

The other somewhat negative news was an uptick in the unemployment rate, to 4.8 percent from 4.7 percent in the prior month.  That increase, however, was largely due to more people entering the labor force.  The labor force grew by 76,000 in January, pushing the participation rate to 62.9 percent, the highest since September 2016 – a positive sign.

The labor market remains the key to the economic outlook. Jobs and income growth support consumer spending, but a tightening labor market and accelerating wages are a concern for the Federal Reserve. The U.S. economy appears to be walking a tightrope at the moment, growing at a decent pace but not overheating.

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Robert Hughes

Robert Hughes joined AIER in 2013 following more than 25 years in economic and financial markets research on Wall Street. Bob was formerly the head of Global Equity Strategy for Brown Brothers Harriman, where he developed equity investment strategy combining top-down macro analysis with bottom-up fundamentals. Prior to BBH, Bob was a Senior Equity Strategist for State Street Global Markets, Senior Economic Strategist with Prudential Equity Group and Senior Economist and Financial Markets Analyst for Citicorp Investment Services. Bob has a MA in economics from Fordham University and a BS in business from Lehigh University.