January jobs report shows weaker but continued growth

ChinaStockChina’s Economic Growth in 2015 Was The Slowest in 25 Years. Growth in the Eurozone and the wider European Union will be slightly weaker than previously forecast, warning that the economic slowdown in China and other emerging markets, as well as failure to deal with the refugee and migration crisis, could further hurt the economy. EU Warns on China Slowdown, Border Checks as Threats to Economic Growth.

The world’s slowing economy is weighing on the U.S. economy: “Some economists say the US is heading for a recession. Others don’t think we’re there just yet.” SeeThere’s a big sign that we ‘could enter recession in the second half of this year’. Tumult in emerging markets and the commodities sectors could create both real and psychological hits to a U.S. economy that is already growing sluggishly. If There Is a Recession in 2016, This Is How It Will Happen. U.S. factory orders have plunged as inventories ratio soars to recession cycle highs. And U.S. layoffs have surged to a 6-month high.

And then there is the severe winter weather which has affected first quarter performance over the past several years.

Despite these ominous storm clouds on the horizon, the January jobs report showed continued job growth. Steve Benen has the January jobs report. Unemployment rate drops below 5%, reaches 8-year low :

After a sizzling jobs report surprised nearly everyone a month ago, a less impressive report seemed almost inevitable. Projections pointed to growth under 200,000 for the month.

And as those projections were a little overly optimistic. The Bureau of Labor Statistics reported this morning that the U.S. economy added just 151,000 jobs in January. And while that’s a disappointing figure — which will be revised in the coming months — the overall unemployment rate inched lower to 4.9%, reaching a low last seen in February 2008, exactly eight years ago.

JanuaryJobs

While the overall total on job creation fell short, it’s also worth noting that this report pointed to an increase in average hourly earnings, which was quite encouraging.

[Real average hourly earnings increased 1.8 percent, seasonally adjusted, from December 2014 to December 2015. This increase in real average hourly earnings combined with a 0.3-percent decrease in the average workweek resulted in a 1.6-percent increase in real average weekly earnings over this period. Real Earnings – Bureau of Labor Statistics.]

In terms of the revisions, today’s report is the once-a-year report that revises every month from the previous calendar year. On this front, the news is also good: we previously believed the U.S. economy created 2.65 million jobs in 2015, but the new, final tally is 2.74 million.

January was the 64th consecutive month of positive job growth — the best stretch since 1939 — and the 71st consecutive month in which we’ve seen private-sector job growth, which is the longest on record.

Neil Irwin of The Upshot at the New York Times raises some interesting points in Three Big Questions on the Job Market, and How January’s Numbers Answer Them:

[W]hile economists and financial markets have traditionally placed the greatest weight on that payroll number as the key indicator of whether economic growth is speeding up or slowing down, we’re entering a phase where some other components of the jobs report are more important.

Think of it this way: Millions of people lost their jobs during the 2008-2009 recession, and during the last seven years the biggest question has been how quickly they got back to work. But now that job is largely accomplished, and the United States has 4.9 million more jobs than it did at the onset of the recession in December 2007.

Mathematically, the rate of job growth will have to slow as we get closer to full employment, simply because the number of people available to be hired can over the long term only grow in line with population growth, which would be something below 100,000 jobs a month.

The questions now are more subtle. Here are the questions — and the answers offered by the January data.

How close are we to full employment?

The jobless rate fell to 4.9 percent in January, the first sub-5 percent reading since February 2008. That’s good news, particularly because the details of the survey from which the unemployment rate is derived show that the rate fell for good reasons (more people working) instead of bad ones (people dropping out of the labor force).

What exactly constitutes full employment is open for debate, but it’s important to note that we are now within sight of a jobless rate that matches the low point of the 2002-2007 expansion (4.4 percent, achieved in several months in 2006 and 2007).

Are more people joining (or rejoining) the labor force?

During the crisis, millions of Americans dropped out of the labor force, and a key question for understanding the United States’ economic potential is how many can be coaxed back in as the job market improves.

The January numbers report good news on that front. After adjusting for the updates to the Labor Department’s population estimates, the size of the labor force rose by 284,000 in January, and the ratio of the population that is employed ticked up by a tenth of a percent, as did the labor force participation rate.

It’s hardly enough to solve the problem of America’s missing work force, but for one month at least the numbers were pointing in the right direction.

Are wages finally rising?

With full employment within sight, the big question is less how many jobs are being added and more about how much workers are being paid. Here too there was good news in January, with an 0.5 percent rise in average hourly earnings and a small increase in the length of the average workweek.

That still leaves wage growth over the last year at 2.5 percent, below its pre-recession levels. The silver lining is that inflation has been so low over the last year, thanks in large part to a drop in energy prices, that the 2.5 percent increase in an average worker’s pay translates into a meaningful gain in buying power.

As we get closer to full employment, it is inevitable that job creation will slow. But so long as these other indicators in these monthly reports keep showing improvement in 2016, it will be a good year for American workers anyway.

Just as long as the economy keeps growing through Election Day in November. I am not at all confident on that point.

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