Payrolls in January surprised to the upside with a gain of 304k, almost double the estimate of 165k but December was revised down by 90k. Previous months to that were also tweaked. The household survey said jobs were lost, by 251k and with the 11k drop in the size of the labor force, the unemployment rate rose one tenth to 4%. Of note, the all in U6 rate jumped by 5 tenths to 8.1%, the highest since February 2018. Most of the job losses in this survey came from those with a college degree or higher. There was a pick up in ‘job losers’ and a drop in ‘job leavers.’ Also, there was a 490k increase in those working part time mostly because of ‘slack work’ (not enough full time work).
As seen in ADP, construction was a big contributor to the job growth with a gain of 52k, most likely due to the mild weather up until the end of the month. Reflecting this mild weather impact, 265k didn’t work because of weather vs the average of 408k in January. Manufacturing hiring though slowed to 13k, the lowest since August. Jobs rebounded in retail and leisure/hospitality saw a nice gain of 74k.
Average hourly earnings rose just .1% m/o/m but the y/o/y gain of 3.2% is still good and average weekly earnings were higher by 3.5% reflecting a better trend. Hours worked were unchanged at 34.5. The participation rate ticked up by one tenth to 63.2%, the most since 2013. The employment to population ratio was also up by one tenth to 60.7%, the most since 2009. There was also a sharp drop of about 650k in the category known as Not in Labor Force.
Smoothing out the monthly data and with all the revisions puts the 3 month average job gain at 241k vs the 6 month average of 232k, the 12 month average of 234k. This is an improvement vs the 2017 average of 179k, the 2016 average of 193k, 2015 average of 227k and just below the 2014 average of 250k.
Bottom line, even with the downward revisions, payroll gains were good but there were holes in the household survey with the rise in the unemployment rate for the wrong reasons (drop in jobs and in the size of the labor force). I’m still optimistic about rising wages as average weekly earnings rose to match the best level since 2007 as labor now has leverage of employers. This all said, we need to look at jobs data as at best a coincident indicator but more typically a lagging one. Just as I believe we’ve seen the bottom in claims, it’s becoming likely that we’ve seen the bottom in the unemployment rate this cycle. Also, with GDP growth moderating, we’ll be keeping a closely eye on productivity possibly slowing with this number of job gains.
The Treasury market is responding only slightly as after a 15 bps decline in the 2 yr over the past 4 days, the yield is up 1 bp today. The 10 yr yield after dropping by 13 bps Monday thru Thursday is up less than 1 bp. This bond market behavior along with the rallies in European and Asian bonds is certainly sending a message about what participants are seeing with global growth.
Lastly, with respect to the Fed, today’s number changes nothing as to their new position.