Schroders Quickview: Headline payroll figure masks healthy US jobs report

Keith Wade, Chief Economist & Strategist

The headline non-farm payroll figure was an increase of 151k in January compared to 262k in December with only a modest net revision to the previous two months readings. Meanwhile, the unemployment rate fell to 4.9%, the lowest for nearly eight years, and wages registered a 0.5% month-on-month gain (2.5% year-on-year). So, despite a slight moderation in job growth last month we also saw signs that the level of unemployment is feeding into higher wage growth.

Economic growth cooled at the end of last year and investor concerns of a recession in the US have increased. However, these figures suggest that the labour market in the US remains in reasonable shape with companies continuing to hire and wage earners enjoying a bit more income in their pockets. It must be said though that this is at odds with the slowdown in business investment spending and recent Institute for Supply Management (ISM) indices, an outcome which might be due to the growth in the less capital-intensive service sector. Nonetheless it was surprising to see jobs being added in manufacturing in today’s report following the recent ISM release which was more pessimistic on this front.

It is difficult to say how the Federal Reserve (Fed) will look at this, but the report shows that total hours worked and the aggregate payroll (which combines payrolls, hours and earnings) both accelerated in January, indicating a pick-up in real GDP growth and the potential for stronger consumer spending. The challenge for the Fed will be to balance such evidence of domestic health against an external environment which has turned more deflationary amid a tightening of financial conditions. Fed Chair Janet Yellen will enlighten us at next week’s testimony before Congress where she will no doubt point out that there is some time and another employment report due before the Federal Open Markets Committee meets on March 15.

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