February 7, 2020

Executive Summary:

US payrolls added 225,000 in January, well ahead of expectations and rebounding from a noisy December report, while the unemployment rate ticked up to 3.6%. We would forewarn that the impact of the Boeing MAX production shutdown, which is rippling through its supply chain, has yet to appear in the data. Still, the long-term trends remain intact, reflecting a US economy that is on solid footing, albeit growing modestly slower.

Longer-Term Trend

US nonfarm payrolls added 225,000 in January, handily beating the consensus expectation of 165,000. Revisions to the prior two months added 7,000 more jobs to the previously reported totals. The November tally was revised up by 5,000 to 261,000 from 256,000, and the December figure was revised up by 2,000 to 147,000 from 145,000. The six-month average edged higher to 198,700.

The six-month average job gain has nudged back toward 200,000 per month.

The government-sponsored Migration Advisory Committee recently rejected the UK government’s Australian-style points-based immigration system, which hoped to attract global talent to the UK.

Labor Force and Unemployment

The unemployment rate ticked up 0.1 percentage points to 3.6%, which is just above the 50-year low. The all-in unemployment rate (U-6) also rose, up 0.2 percentage points to 6.9%, near its lowest level since the series began in 1994. The labor force added a modest 50,000 workers, taking the total workforce to 164.6 million. However, the labor force participation rate rose 0.2 percentage points to 63.4%, which is the highest level since 2013.

The unemployment rate rose, but continues to hover near the lowest level since December 1969.

Industry Trends

Service-providing industries added 174,000 workers, while goods producers added 32,000. There were three negative segments in January, manufacturing, retail trade and financial activities, along with one, mining & logging, which was unchanged.

On the upside, construction added 44,000 in January, which was more than double the 24-month average of 20,000. The vast majority came from specialty contractors, evenly split between residential and commercial. This was likely a pull-forward of activity thanks to the milder winter in much of the South and Midwest.

Manufacturing lost 12,000 jobs, although the Boeing MAX production shutdown was not the apparent culprit, contrary to our expectation. The bulk of the job losses within transportation equipment manufacturers was by automotive manufacturers, which sliced 10,600 workers during the month. That said, the report does not provide complete industry detail, which is reported on a roughly two-month lag, including data for the aerospace manufacturers. In fact, aerospace added 1,000 workers in December.

Construction added the most jobs in a year, but manufacturing is still struggling.

Retail trade remained weak, clipping 8,000 workers. Furthermore, the underlying data looks even weaker, as strength within specialty retail—such as sporting goods and building materials & garden stores—masked continued heavy job losses within department stores, which shed almost 17,000 in January.

Financial activities were also weak, though it appeared to be a case of less hiring rather than losses as the largest subindustry decline was just 2,400 within real estate.

Government hiring was also a little stronger than expected in January. The majority were local non-educational positions, which added 15,000 workers of the 19,000 total within government.

The rest of the industry results were largely in line with their two-year trend.

Wage & Worktime Trends

The average workweek for private employees was unchanged at 34.3 hours for a second straight month. Average hourly earnings for all employees were $28.32, up 3.1% from a year ago, which was a modest pickup from the December pace.

The average workweek for production and nonsupervisory workers—representing more than 80% of the US labor force—rose by 0.1 to 33.6 hours. Average hourly earnings for these workers were essentially unchanged at $23.87, which is up 3.2% from a year ago, also a rebound from the weak December reading. However, the average workweek in manufacturing slipped to 40.4 hours and overtime fell by 0.1 to 3.1 hours.

Bottom Line

The January figures were quite strong, rebounding from a noisy December report. Still, we would forewarn that the impact of the Boeing MAX production shutdown, which is rippling through its supply chain, has yet to appear in the data.

Additionally, the January wage and worktime data firmed, but the revisions did not completely reverse the sharp December declines. Nonetheless, the bulk of US workers have held onto most of the wage gains achieved over the course of 2019. As we have repeatedly noted here, more workers with steady hours and higher wages translates into bigger paychecks, which in turn should equate to continued consumer spending. Ultimately, the long-term trends within the job market remain intact, reflecting a US economy that is on solid footing, albeit growing modestly slower as we move into 2020.

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