Instant Analysis: January jobs report
Smaller than expected bounce in non-farm payroll gains in January 2014, up +113K jobs versus consensus expectations for +180K. It looks to me like another weather-impacted payroll survey. The report’s details are not as distressing as the headline shortfall.
Weakness in the January report was centered in private services and government payrolls. Private services job gains have slowed from +204K in November of last year to +102K in December, and now only +66K in January.
Service job weakness was visible across several industries, including retail (-13K), education and health (-6K), financial services (-2k), and information (+0K). Government payrolls dropped (-29K) with (-12K) of that decline coming from the Federal government. We would be a little more concerned if the weakness in services payrolls was being confirmed by a drop in the ISM Non-manufacturing Index, but that is not the case, so for now at least this slowdown in services employment gains should be taken with a grain of salt.
Surprisingly, the goods producing side of the economy appeared to fare better than services sectors. Manufacturing payrolls climbed 21K — the best monthly gain since November. Construction payrolls climbed by 48K, well above the three month moving average of +19K jobs a month.
The household employment survey looked a lot more robust than the establishment survey, suggesting things might not really be so bad in the labor market. Household employment gained a huge 638K jobs in January up from 143K in December. Reversing recent trends, the labor force increased by 523K, leading to an increase in the labor force participation rate to 63.0% from 62.8% in December. The unemployment rate dropped to 6.6% from 6.7% as we expected (this time for the right reasons). Even the average duration of unemployment fell sharply to 35.4 months from 37.1.
December income gains improved in-line with expectations. Hourly earnings increased 0.2%, a larger gain than in recent months, and the year-on-year gain held at 1.9%. Average weekly hours worked held steady at 34.4 hours. We still need to see more visible improvement in income gains if the recent acceleration in consumer spending is to be maintained.
Bottom-line, this was another somewhat disappointing payroll report that may have been impacted by the bad weather on the month. Still, questions about the sustainability of recent employment gains remain, and no definitive trend clearly emerges. We suspect the labor market recovery is healthier than the headline numbers imply. Market reaction has been muted as this employment release changes few minds about the direction of the economy.