January Jobs Data - Good, but Slack Remains

Contrary to what you may have heard, the U.S. economy did not add 257,000 jobs in January. That’s the seasonally adjusted figure. We actually lost 2.755 million jobs, which was a smaller decline than the year before (-2.811 million). Yet, while seasonal adjusted figures may often be looked at skeptically, the broad range of labor market indicators suggests solid improvement. These data also suggest that we still have a long way to get to normal. The Fed’s chief tasks will be to make sure we get there and to manage market expectations along the way.

One shouldn’t put too much weight on any particular month of data, but almost all labor market gauges are reflecting improvement. Much of the pickup in job growth appears to reflect growing confidence among small businesses.

Unadjusted payrolls plunge each January, reflecting the end of the holiday shopping season, school year effects, and weather. The January drop this year was smaller than in recent years. In retail, we lost 593,000 jobs (vs. -669,000 in 2014).

The unemployment rate edged back up to 5.7%. That’s just noise. Labor force participation dipped in December, and then rebounded in January. At some point, as the job market improves, a lot of people currently on the sidelines (those wanting a job, but not officially counted as “unemployed”) should re-enter the job market. As a result, the unemployment rate decline is expected to slow. The employment/population ratio is a better measure of labor utilization. This rate is trending gradually higher (more so for the key cohort, those aged 25-54), but we’re still well below pre-recession levels. Moreover, we have a lot of underemployment. As workers move up to positions more commensurate with their education and skills, they leave openings for those coming up the ladder.

Labor market slack is evident in the lackluster trend in earnings. Average hourly earnings rose 0.5% in January, but that followed -0.2% in December. The Fed should be willing to tolerate a pickup in wage growth. However, some officials are more patient than others. Fed Chair Yellen should bring others to her viewpoint. She will deliver her monetary policy testimony to the Senate Banking Committee on February 24.

(c) Raymond James

© Raymond James

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