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02 05 2016 | by Victor Xing | Economics

January NFP: tighter labor market slack vs. slower hiring

January NFP (non-farm payrolls) – tighter labor market slack amid slower hiring

The U.S. Bureau of Labor Statistics reported that January non-farm payrolls rose by 151,000 (vs. 188,000 market consensus), a softer figure following brisk hiring seen in November (at 280,000 following an upward revision of 28,000) and December (at 262,000 following a downward revision of 30,000), with prior two months revision at -2,000.

Details within the report were encouraging – above-consensus wage growth, stronger labor market participation, and a decline in unemployment rate (due to more people looking for work than dropping out of the labor market).  Nevertheless, the latest report give nascent hints of stagflation if wage growth and trend service inflation were no longer offset by soft prices of oil and import goods.  This will be closely watched by Federal Reserve policymakers as dovish FED communication briefly pushed the probability of any rate hike in 2016 below 50% on Wednesday, and it has again risen to 80% following today’s employment data.

  • U3 unemployment rate at 4.9% vs. 5.0% prior – this is good especially given the rise in participation rate (higher participation rate, i.e. unemployed workers looking for work again, thus being counted as part of the workforce, would naturally push unemployment rate higher)
  • U6 broader unemployment rate unchanged at 9.9%
  • Involuntary part-time workers at 3.78% vs. 3.82% prior
January NFP - U3, U6 and part-time workers for economic reasons
U3, U6 and part-time workers for economic reasons

Both aggregate and prime age (25 to 54 year segment) participation rate extended last month’s rise, and it is helpful to put the recent developments in perspective of long-term trends

  • Prime age participation rate at 81.1% vs. 80.9% prior
  • Aggregate participation rate at 62.7 vs. 62.6 prior
January NFP - labor market participation rate
Labor market participation rate

And from a longer-term perspective:

January NFP - labor market participation
Long-term trends of labor market participation

The highly watched wage data was also positive:

  • Average hourly earnings rose at 0.47% MoM vs. 0.0% prior (market consensus was 0.3%).  Average workweek rose to 34.6 hrs vs. an expected 34.5 hrs
  • Average hourly earnings at 2.54% YoY vs. 2.68% prior
January NFP - average hourly earnings
Average hourly earnings

One less rosy component of today’s report is the long-term (27 weeks and over) unemployed as a percentage of total unemployed, at 26.9% vs. 26.3% prior

January NFP - long-term unemployed as a percentage of total unemployed
Long-term unemployed as a percentage of total unemployed

Breaking down the employment sectors

The BLS provided the following sector breakdown of the employment report, highlighting surprising growth in the manufacturing sector (that had been under pressure from strong dollar since 2H 2014), and not surprisingly, mining sector continued to shed payroll amid the decline in oil prices.

Nevertheless, the health care sector continued its robust hiring, and it is perhaps still unwise to celebrate the on-going strength in the low wage “food services and drinking places” sector.

From the BLS:

Retail trade added 58,000 jobs in January, following essentially no change in December. Employment rose in general merchandise stores (+15,000), electronics and appliance stores (+9,000), motor vehicle and parts dealers (+8,000), and furniture and home furnishing stores (+7,000). Employment in retail trade has increased by 301,000 over the past 12 months, with motor vehicle and parts dealers and general merchandise stores accounting for nearly half of the gain.

Employment in food services and drinking places rose in January (+47,000). Over the year, the industry has added 384,000 jobs.

Health care continued to add jobs in January (+37,000), with most of the increase occurring in hospitals (+24,000). Health care has added 470,000 jobs over the past 12 months, with about two-fifths of the growth occurring in hospitals.

Manufacturing added 29,000 jobs in January, following little employment change in 2015. Over the month, job gains occurred in food manufacturing (+11,000), fabricated metal products (+7,000), and furniture and related products (+3,000).

Employment in financial activities rose in January (+18,000). Job gains occurred in credit intermediation and related activities (+7,000).

Private educational services lost 39,000 jobs in January due to larger than normal seasonal layoffs.

Employment in transportation and warehousing decreased by 20,000 in January.

Most of the loss occurred among couriers and messengers (-14,000), reflecting larger than usual layoffs following strong seasonal hiring in the prior 2 months.

Employment in mining continued to decline in January (-7,000). Since reaching a peak in September 2014, employment in the industry has fallen by 146,000, or 17 percent.

Employment in professional and business services changed little in January (+9,000), after increasing by 60,000 in December. Within the industry, professional and technical services added 25,000 jobs over the month, in line with average monthly gains over the prior 12 months. Employment in temporary help services edged down in January (-25,000), after edging up by the same amount in December.

Employment in other major industries, including construction, wholesale trade, and government, changed little over the month.

 

Next article02 03 2016 | by Victor Xing | Economics

January ISM recap: weakness continues