Jobs Report Friday
DOW + 186 = 20,071
SPX + 16 = 2297
NAS + 30 = 5666
RUT + 19 = 1377
10 Y + .02 = 2.49%
OIL + .55 = 54.09
GOLD + 3.60 = 1220.00
The economy gained 227,000 new jobs in January, up from 157,000 in December. The unemployment rate rose to 4.8% from 4.7%, mostly because more people were looking for work. Job openings are near a record high and that’s drawing a larger share of Americans back into the labor force.
Revised estimates from December and November cut 39,000 jobs from the total payroll increases. There were 157,000 new jobs created in December instead of 156,000. November’s gain was chopped to 164,000 from 204,000. Year-over-year in January, the economy gained 2.34 million jobs.
In January, hourly wages rose just 0.1% ( or 3 cents) to $26 an hour. The average workweek was unchanged at 34.4 hours. Slow growth in wages brought the year-over-year pace back down to 2.5%, after rising at a 2.9% clip in December.
And while that is higher than the 1.6% pace of inflation, we just aren’t seeing wage-push inflationary pressures, meaning wages are not causing inflation; suggesting there is still slack in the labor market.
Still, certain jobs and sectors are very tight indeed. Many small and medium sized businesses are facing labor shortages, especially for tech workers. And we are seeing a generational shift for skilled workers; such as mechanics and welders, and there have been some shortages because we got away from training and apprenticeship programs.
At the low end of the pay scale, local minimum wage increases – ranging from as little as 5 cents an hour in Florida and Alaska to $1.95 an hour in Arizona – affected approximately 4.3 million workers across 19 states in January.
The widest impact was felt in Arizona, California, and Washington, where more than 1 in 10 workers got a raise. Still, not enough to make a difference in wages, and apparently not a cause to cut back on hiring.
The causes behind the weak wage growth aren’t easily pinned down. While the government’s annual bench-marking process might have had some trickle-down effect, the turning over of the calendar year also could share the blame.
Bonus season probably results in some fluctuation in reporting on pay, with businesses revising those increases back down when end-year plans changed. The lower-than-expected reading on pay could also be attributed to the mix of jobs that were added, such as retail, which are generally low-paying jobs.
One possible reason for flat wages is the lack of labor mobility. Firm-specific wages are evidence of an uncompetitive labor market. After all, if workers could move freely between firms, that should equalize the pay workers of similar experience and education obtain across firms within an industry or geography.
And the further into the labor market you drill down, to workers in narrowly defined skill and experience groups, the more residual inequality is apparent. If you only have one firm where you can use your skills, a condition known as monopsony, the result is flat wages.
One reason for monopsony might be anti-compete clauses. Another reason might be that many people were locked into their homes in the Great recession, unable to move due to negative equity, resulting in a lack of labor mobility.
The share of working age adults in the labor force is still at historical lows. The labor force participation rate, or the share of working-age Americans who are employed or at least looking for a job, was at 62.9 percent in January, the highest level since September.
A broader measure of unemployment which includes discouraged workers and people working part-time but would prefer full-time, the U-6 unemployment rate rose to 9.4%. There are about 5.8 million unemployed or underemployed, and the number of people working part-time for economic reasons increased, suggesting there is still some slack in the labor market.
Manufacturing payrolls increased by 5,000 jobs, rising for a second straight month as the oil-related drag on the sector eases. Construction employment jumped 36,000, the largest increase since March, after December’s paltry 2,000 gain.
An unusually high number of people said poor weather in trades such as construction prevented them from working in December. Those jobs usually turn up, statistically speaking, in the following month.
Retail payrolls, surprisingly surged 46,000, the biggest rise since February. Retailers, including Macy’s, Sears, American Apparel, and Abercrombie & Fitch announced job cuts in January amid store closures. Department store sales are being undercut by online retailers, led by Amazon.com.
So why the bump in retail employment? Well retailers hired fewer people than usual for the holiday season, meaning they probably laid off fewer workers in January as well.
Financial activities added 32,000 jobs last month. Professional and technical services rose by 23,000. Employment in food and hospitality increased by 30,000. And health care added 18,000.
Government employment fell for a fourth straight month in January. Further declines are likely after the Trump administration enforced a hiring freeze on civilian federal government workers on Jan. 22.
The head of the Congressional Budget Office, Keith Hall told the House Budget Committee that this year’s federal deficit will drop to $559 billion, down from a deficit of $587 billion in fiscal 2016, but will explode to $1.4 trillion a year by 2027.
The deficits are expected to grow above 3% of GDP after 2019, in part because of an insufficient labor force associated with retiring baby boomers, and the continued growth in spending. The nonpartisan office based its projections on the assumption on current laws remaining in place; the agency does not speculate on the effect of proposed legislation on the deficit.
The January Jobs Report marks the end of the Obama Administration and the beginning of the Trump Administration tracking the labor market. And while Trump took credit for the jobs gained in January, it wasn’t that long ago that he declared the unemployment rate a phony, totally fictitious number. He claimed the real unemployment rate was not somewhere under 5% but rather closer to 42%; which is nowhere near reality.
Still, Trump has an almost valid point, even if his math is imaginary. Trump’s skepticism toward the unemployment rate is clearly rooted in political self-interest—if he treated the number as legitimate, he would have to acknowledge that the economy improved significantly under President Obama. By undermining public trust in government data, he also makes it harder for anybody to hold his administration accountable for the economy’s performance.
The new president promises his plans will create 25 million new jobs in the next decade. It would be the most jobs created under any U.S. president ever, topping even the nearly 23 million jobs added under President Bill Clinton during the boom years of the 1990s.
That won’t be easy, and it almost certainly will not happen. First, the population is aging; boomers are retiring; there just aren’t enough young workers to replace the boomers, certainly not without massive immigration. Next, automation is coming; robots will be doing more and more work. Robots are not counted in the Jobs Report.
Next, the rest of the global economy has slowed – it’s not just America. It won’t be easy to manufacture 4% growth in the US, while the rest of the world slogs along. Good luck, but don’t hold your breath.
Meanwhile, back to those fictitious unemployment numbers. Trump has a point; 4.8% unemployment rate is misleading; the economy is not nearly as rosy as that number would suggest. Like all economic indicators, it has shortcomings, and those weaknesses have grown more problematic since the Great Recession. If an administration wanted to benchmark its economic performance by focusing on a single headline statistic, this might be a good time to pick a new one.
Fortunately, the Labor Department has six different measures U-1 through U-6; the headline number, the number cited most often is U-3 which is now at 4.8%; a person is lumped into that category if they’ve looked for a job in the past 12 months but not in the past four weeks.
Known as discouraged workers, these people are included in a different jobless rate called U5, which is about one full percentage point higher than the official unemployment rate. Pick a number, any number, just realize that one number is apples, and the other is oranges.
Perhaps more important is if the Federal Reserve realizes that the U-3 rate of 4.8% does not mean we are at full employment. The labor market has changed, and will continue to change. And there is no reason to slow down job growth through monetary policy.
On Wednesday, the Fed kept its benchmark overnight interest rate unchanged in a range of 0.50 percent to 0.75 percent. It said it expected labor market conditions would strengthen “somewhat further”; which is exactly what happened. There’s still a very strong resistance from firms to pay higher wages.
There’s a gradual uptrend, but you’re not seeing rapid wage growth. The weak increase in wages means there is no problem with wage-push inflationary pressures. So, it doesn’t appear that anything in today’s Jobs Report will change the Fed’s gradualist policy path for rate hikes.
A little bit more news to cover today. President Trump signed executive orders to review the Dodd-Frank Wall Street reforms and halt a Labor Department rule designed to curb potential conflicts among brokers who give retirement advice. The Dodd-Frank executive order will ask the Treasury secretary to work with other regulators to determine what the administration can do to fix issues with measures issued under the 2010 Dodd-Frank Wall Street reform law.
The Labor Department’s retirement advice rule requires brokers to act as “fiduciaries,” or in their clients’ best interests, when they are advising them about their individual retirement accounts and 401K plans. A presidential order imposed a 180-day delay on the implementation of that rule.
The Trump administration also imposed sanctions on 25 individuals and entities, ratcheting up pressure on Iran in what it said were just “initial steps” and said it would no longer turn a “blind eye” to Iran’s hostile actions.