Job Growth Was Strong in January, Overcoming Headwinds

The job market stayed on a path of steady growth in January.

  • Employers added 225,000 jobs. Forecasters had expected a gain of about 164,000.

  • The unemployment rate was 3.6 percent, up from 3.5 percent in December but still near a half-century low.

  • Average hourly earnings were up 3.1 percent from a year earlier.

  • A major annual revision showed that 2018 and early 2019 produced more than half a million fewer jobs than previously reported.

The job market sprang to life in January, kicking off the election year with some good news for a president who has made the economy the centerpiece of his bid for re-election.

Hiring slowed somewhat last year amid trade tensions and recession fears, but the job market has proved resilient. Now, with the recent abatement in the trade war, those concerns have eased and hiring has rebounded.

“You still have headwinds of tariffs, you still have headwinds of trade uncertainty, but those headwinds have been lessened,” said Ellen Zentner, chief United States economist for Morgan Stanley.

January’s numbers may have been helped by unusually warm winter weather in much of the country, which lifted employment in construction, hospitality and other weather-sensitive sectors.

“The overall employment number is not as good as first glance suggests because of unusual January weather, but it’s still a solid number,” said Diane Swonk, chief economist at Grant Thornton.

There are still some clouds in the economic sky. The shutdown in production of Boeing’s 737 Max aircraft is rippling through supply chains, retailers are laying off workers, and the new coronavirus could have widespread — though still hard to quantify — economic effects. Manufacturers and retailers both cut jobs in January, and most economists expect hiring to continue its gradual slowdown this year.

Still, this is, by many measures, the best environment for workers in years. Employers are hiring candidates with disabilities, criminal records and other barriers to employment, and are offering flexible schedules and other perks to draw workers off the sidelines. Wages are rising fastest for people at the bottom of the earnings ladder.

The unemployment rate ticked up in January to 3.6 percent, but the rise doesn’t suggest any trouble in the job market. In fact, the opposite: The rate increased because more people joined the labor force to look for work.

The strong labor market in recent years has drawn millions of people off the sidelines and into the work force. The labor force participation rate — the share of the population that is working or looking for work — has been edging up despite a steady outflow of retiring baby boomers. And the rate among Americans in their prime working years has been soaring, especially for women.

The growth of the labor force is good news for workers, because it means the strong economy is giving opportunities to people who were left out of the early stages of the recovery. And it is good news for the broader economy, because it means that companies can keep adding jobs without running out of workers.

“It means we don’t have to settle for a lower pace of job growth,” said Michelle Meyer, chief United States economist for Bank of America Merrill Lynch. “Not only is there demand for labor, there’s supply to fill that demand, and that’s a very positive narrative.”

The growth of the labor force will probably please officials at the Federal Reserve, who cut interest rates three times last year in a bid to keep the expansion from stalling. Friday’s report is a sign that effort is working, while the continued modest pace of wage growth suggests the central bank doesn’t have to worry that the economy will overheat.

Wage growth picked up a bit in January, but over all it remains disappointing, as it has for much of the decade-long expansion. A brief acceleration in wage growth in 2018 prompted hopes that the tight labor market was finally giving workers more bargaining power with employers. But growth has slowed again.

“The moderation in wage growth is the big question,” said Julia Coronado, president of MacroPolicy Perspectives, an economics consulting firm. “It’s everything.”

Economists are not sure what is behind the recent cooling in wage growth, or whether it will continue. It may be an early sign that the job market is weakening more than the headline jobs numbers suggest. Employers in recent months have posted fewer job openings, and the average workweek has shortened.

“It really seems like we are seeing some slowdown in employer demand for workers and hours, and that means a bigger dent on people’s take-home pay,” said Julia Pollak, a labor economist for the employment site ZipRecruiter.

The industrial slump that began last year continued in January. Manufacturers cut 12,000 jobs, with most of the losses coming among automakers, and employment also dipped in the mining sector. Job growth in freight transportation was also weak, the latest evidence that the ripple effects of the trade war are continuing to spread.

The “Phase 1” trade deal with China announced last month, along with the passage of a new North American trade agreement, should help limit further damage. But it could take time for the benefits to filter through to the job market.

“For manufacturing in the U.S. to rebound, you need to see activity globally rebound as well,” Ms. Meyer said. “In the near term, manufacturing might remain more sluggish.”

In the meantime, there is a new threat on the horizon: The coronavirus outbreak has shuttered factories in China and could affect trade globally.

The data in Friday’s report was collected before the coronavirus began to spread, and there have been few signs so far that the outbreak has affected the American economy. Data for the February jobs report will be collected next week, and investors and policymakers will be watching closely for any signs that companies or consumers have become more cautious as a result of the virus.

“I feel like people won’t breath a sigh of relief until they see a February report,” Ms. Zentner said.

In addition to the January figures, the jobs report on Friday included updates to data from 2018 and 2019. These “benchmark revisions” are conducted every year to align the monthly survey-based estimates with more definitive data from state unemployment insurance records, and are usually minor.

Not this year. The revisions showed that employers added 514,000 fewer jobs in 2018 and early 2019 than initially reported, mostly consistent with preliminary figures released last summer. That’s the equivalent of wiping out more than two months of job growth at recent rates, although hiring caught up a bit later in 2019 — by the end of the year, the gap between the original and revised figures had narrowed to about 400,000 jobs.

The revisions kept alive the economy’s record-setting streak of job gains, but by the slimmest of margins. Employers added just 1,000 jobs last February, down from 56,000 before the revision. The jobs streak now stands at 112 consecutive months, far and away a record.

The revisions do not change the fundamental picture of a healthy job market. But they suggest that the economic jolt delivered by the Republican tax cuts in 2018 was milder and ended sooner than it initially appeared.

“There were lots of skeptics when it passed that it would have much pass-through” to the larger economy, Ms. Coronado said of the tax law. “And now the data confirms that there wasn’t much pass-through.”

In his State of the Union address on Wednesday, President Trump sought to take credit for the strong economy. There are signs that pitch is working: Consumer confidence is up among independents, a potentially decisive constituency in the November election. Expect Mr. Trump and his backers to seize on the best elements of the report on Friday as evidence of his success.

But the economy also carries risks for Mr. Trump. Despite his claims of a “blue-collar boom,” manufacturing employment has slumped in recent months, particularly in the politically crucial Midwest. The oil industry is also struggling. And Democrats have highlighted weak wage growth as they argue that the economy is not working for many American families.

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