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First Cut: January Employment Situation an eye-opener with payrolls headline, uptick in unemployment rate not worrisome

The January Employment Situation showed non-farm payrolls up 304,000, substantially above expectations. However, a quick glance at the revisions to the prior two months which were down a net 70,000 puts the number in perspective. Subtracting out the revisions brings the January total down to a more believable level, if one that still outpaces market expectations.

Private payroll had a strong up 296,000, consistent with the signal from the ADP National Employment Report. Goods-producers were up 72,000, in large part from a sharp rise in construction 52,000 that indicates building – possibly in part to replace housing stock lost in recent natural disasters – is continuing in the winter months. In spite of signs of slower expansion for the factory sector, manufacturing payrolls remained on the rise at up 13,000. Service-providers saw a gain in retail hiring of 21,000 in the post-holiday period, as well as a hefty increase for transportation of 27,000.

The average increase in non-farm payrolls in the fourth quarter 2018 was 231,00, a firming from the up 190,000 in the third quarter. The six-month moving average was up 234,000 in January.

While average hourly earnings were up a meager 0.1% month-over-month, the up 3.2% compared to a year earlier is in line with firm underlying increases, if a bit slower than the prior two months. The workweek was unchanged at 34.5 hours.

The report included annual revisions to the Establishment Survey. The Household Survey was revised last month.

The rise in the unemployment rate to 4.0% was mainly due to a rise in the number of unemployed related to new entrants into the labor market. December graduates are looking for work. The increase in the U-3 unemployment rate is not a matter of deterioration in the labor market. The rise in the U-6 rate to 8.1% from 7.6% in December could be sign that more marginalized workers are now re-entering the job market.

Another good  sign is a one-tenth uptick in the participation rate to 63.2%.

If there were impacts from the government shutdown in the data, these appear to be minimal.  This was an overall good report that substantiates the FOMC’s views that the labor market continues to strengthen and that the present economy is healthy with a positive outlook if with greater risks.

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