January Payrolls Soar By 225K, Smashing Expectations As Hourly Earnings Coming In Hot

For once the ADP report was not massively off.

With Wall Street expecting a 165K print in this morning payrolls report, and with ADP coming in at almost 300K, the whisper number was obviously well above the official consensus, and the BLS did not disappoint, because just as Trump hinted a few days ago with his "jobs, jobs, jobs" tweet, in January the US created a whopping 225K jobs, smashing expectations, and well above last month's upward revised 142K print.

Looking back, the change in total nonfarm payroll employment for November was revised up by 5,000 from +256,000 to +261,000, and the change for December was revised up by 2,000 from +145,000 to +147,000. With these revisions, employment gains in November and December combined were 7,000 higher than previously reported. After revisions, job gains have averaged 211,000 over the last 3 months.

Curiously, the Establishment survey showed yet another month of strong gains in a stretch that has been unbroken since late 2010, even as the Household Survey indicated that the number of employed workers declined by 89,000, from 158.803 million to 158.714 million.

The unemployment rate nudged higher by 0.1%, rising to 3.6%, above the 3.5% expected, yet still just barely above 50 year lows. Of note, the unemployment rate for both hispanics and blacks also rose to the highest since mid-2019.

This happened as the number of people not in the labor force plunged by 729,000, to 94.896, even as the number of person who currently want a job rose to 4.904 million from 4.832 million in December.

The unemployment rate rose largely because as part of today's broad data revisions, the labor force participation rate inched higher, and at 63.4% is now the highest it has been since 2013.

Most notable, however, for markets was the rebound in hourly earnings, which rebounded from last month's upward revised 3.0%, hitting 3.1% as the average workweek for all employees on private nonfarm payrolls was unchanged at 34.3 hours in January. Notably, after plunging in December to 3.2% from a decade high 3.8%, the average hourly earnings for production and nonsupervisory workers also staged a modest rebound, rising to 3.3% in January.

Looking at the breakdown by jobs, there were notable job gains occurred in construction, in health care, and in transportation and warehousing, while manufacturing was the biggest loser, with 12,000 jobs lost.

  • In January, construction employment rose by 44,000, with much of this gain attributed to warm weather. Most of the gain occurred in specialty trade contractors, with increases in both the residential (+18,000) and nonresidential (+17,000) components. Construction added an average of 12,000 jobs per month in 2019.
  • Health care added 36,000 jobs in January, with gains in ambulatory health care services (+23,000) and hospitals (+10,000). Health care has added 361,000 jobs over the past 12 months.
  • Employment in transportation and warehousing increased by 28,000 in January. Job gains occurred in couriers and messengers (+14,000) and in warehousing and storage (+6,000). Over the year, employment in transportation and warehousing has increased by 106,000.
  • Employment in leisure and hospitality continued to trend up in January (+36,000).
  • Employment continued on an upward trend in professional and business services in January (+21,000), increasing by 390,000 over the past 12 months.
  • Manufacturing employment changed little in January (-12,000) and has shown little movement, on net, over the past 12 months. Motor vehicles and parts lost 11,000 jobs over the month.
  • Employment in other major industries, including mining, wholesale trade, retail trade, information, financial activities, and government, changed little over the month.

Commenting on the report, Bloomberg's Eliza Winger says "The labor market is roaring, providing an important pillar for the economy. The unemployment rate edged up, but Bloomberg Economics continues to expect it to fall to 3.3% by year-end and labor costs to intensify."

So what does this number mean for markets? As a reminder, Fed chair Jerome Powell gives his semiannual monetary policy testimony next week, and today’s jobs report supplies him with some good news to talk about, or to take partial credit for. The Fed has signaled interest rates are on hold this year, and this report confirms that outlook (unless of course China releases the real data for the coronavirus pandemic).

AS BLoomberg notes, the headline number is a solid beat and shows the labor market was still quite strong, if only before whatever damage the coronavirus pandemic does. The gain in average hourly earnings is good news for American workers, and the rise in labor force participation suggests we still have a bit of labor market slack. All in all, Powell will likely be happy with this report, which was neither bad nor good enough to send stocks sharply higher.

One final point, and we'll have more to say about this in a subsequent post: annual revisions to historical data took some of the shine off one of President Trump’s bragging points, cutting 2018’s job gain to 2.31 million from 2.68 million. The increases in 2017 and 2019 were about 2.1 million, meaning that each year under Trump - while still strong - has been slightly slower than the 2.35 million increase in the final year of Barack Obama’s presidency.