Strong Payrolls Gains in January Include Some Clouds of Wage Inflation

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Friday’s top economic report was the Employment Situation report from the U.S. Department of Labor. The number was stronger than what had been indicated in December’s disappointing report, but it was again well short of the strength seen in the ADP payrolls report earlier this week.

Nonfarm payrolls rose by 200,000 on a seasonally adjusted basis in January, and the official unemployment rate remained flat at 4.1%. The number of long-term unemployed, which is people who are unemployed for 27 weeks or longer, was 1.4 million in January, and the figure accounted for 21.5% of all unemployed people.

Bloomberg had its consensus nonfarm payrolls estimates at 175,000, and the December report was revised up from 148,000 to 160,000. Bloomberg had called for a 4.1% official unemployment rate.

January’s private sector payrolls rose to 196,000, versus a 172,000 Bloomberg consensus estimate. December’s weak preliminary gain in private sector jobs was revised from 146,000 to 166,000.

The Bureau of Labor Statistics (BLS) press release showed that the key areas with growth in employment continued to be in construction (36,000), food services and drinking places (31,000), health care (21,000) and manufacturing (15,000). Unfortunately the “strength in manufacturing” feels like a misnomer as the gain of 15,000 came with word that the December level was revised down to 21,000 from a preliminary view of 25,000.

The monthly hourly wages ticked up by 0.3% as expected in January, but this was actually up 2.9% when compared to a year ago. The translation in real dollar terms is that hourly wages were up nine cents on the monthly reading to $26.74 per hour after having risen 11 cents per hour in December. All in all, the 2.9% annual gain translated to a 75 cent per hour gain.

The labor force participation rate remained flat at 62.7%, and the employment-population ratio was 60.1% for the third consecutive month.

Another issue to consider is that the average workweek declined to 34.3 hours in December from a 34.5-hour workweek in December. There were 1.7 million persons who were listed as marginally attached to the labor force, and there were about 5.0 million people employed part-time for economic reasons.

The BLS report showed that the household survey data collection was short staffed from January 20 through January 22 and full staffing resumed on January 23, 2018, and the survey was conducted through January 26, 2018, in order to allow for the usual number of collection days. A further note was made that the response rate for the household survey in January was slightly below the average rate for 2017.

Friday’s key economic report did little to help out the equity markets. The Dow Jones Industrial Average was down 250 points at 25,935 and the 10-year Treasury yield was back up at 2.84% on Friday morning.