Unemployment in USA

USA - Unemployment

Strong January jobs report sees unemployment rise due to shutdown effect

The January jobs report released by the Bureau of Labor Statistics (BLS) shows payrolls made strong gains at the outset of 2019, confirming the underlying robustness of the U.S. economy. Although downward revisions to November and December data reduced non-farm payrolls by 70,000, the January print saw the economy add an impressive 304,000 non-farm jobs, up from a revised 222,000 in December (previously reported: +312,000) and beating analysts’ expectations of 158,000 by a wide margin. Though monthly payroll data is subject to significant revisions, this puts the three-month average payroll gains at just under 241,000, exceeding the long-term average of 200,000 jobs added in each of the last 100 months—the longest consecutive streak of job creation on record in the U.S. economy.

Overall, job creation in January was broad-based across sectors. In the industry sector, job gains were soft in manufacturing due to layoffs among non-durable goods producers but were conversely strong in construction. In the service sector, employment levels rebounded in transportation and warehousing, as well as in retail trade—after revised data showed a slight dip in December. Furthermore, leisure and hospitality; and education and health services continued to post the largest payroll increases.

Despite the strong job growth recorded in the month, unemployment ticked up to 4.0% in January from 3.9% in December. This was however in good part due to the recent U.S. government shutdown which ended on 25 January. While the federal workers furloughed during the shutdown were counted as employed in the BLS’s establishment survey, which is used to compute payroll gains, they were considered as unemployed in the survey of households, from which the unemployment rate is derived. In addition, the labor participation rate increased from 63.1% in December to 63.2% in January, suggesting discouraged workers decided to join the labor force thanks to rising wages—which also mechanically pushed the unemployment rate upwards.

Lastly, among the only muted notes of this report, earnings growth was slightly underwhelming. Hourly earnings increased a modest 0.1% month-on-month (December: +0.4% month-on-month), undershooting expectations of 0.3% and bringing wage growth down to a nonetheless robust 3.2% year-on-year, from the revised 3.3% logged in December (previously reported: +3.2%).

Commenting on the outlook, James Knightley, chief international economist at ING, noted:

“Job creation will likely slow in 2019, but this is as much due to a lack of suitable workers and firms not able to fill vacancies (despite rising labour supply) as it is to economic headwinds for the US. With worker pay on the rise and employees feeling secure in their jobs, consumer spending will likely remain firm while adding to inflation pressures in the economy”.

FocusEconomics Consensus Forecast panelists expect the unemployment rate to average 3.6% in 2019, which is unchanged from last month’s forecast. For 2020, the panel sees the unemployment rate averaging 3.7%.