January Jobs Gains Kick the Year Off with a Bang

Construction leads job creation; wages get a bump

Roy Maurer By Roy Maurer February 7, 2020
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factory workers

Employers in the U.S. added 225,000 new jobs in January, according to the latest Bureau of Labor Statistics report

Payroll additions exceeded the 158,000 new jobs that were expected by economists, and when considered against an unemployment rate holding at a 50-year low, the report shows the economy still has room to grow even in a tight labor market.

"The inaugural report for the 2020s shows the U.S. economy came out swinging in January, with solid jobs gains across a variety of sectors," said Daniel Zhao, Glassdoor senior economist.

January's strong jobs gains point to a healthy labor market in a U.S. economic expansion now in its 11th year. U.S. employers have added an average 211,000 jobs over the past three months.  

"This recovery is more than a decade old, and the continued gains in employment is a sign that it can continue for quite some time," said Nick Bunker, an economist at the Indeed Hiring Lab. "Even the seemingly negative trends are actually positive. The slight increase in the unemployment rate [from 3.5 percent to 3.6 percent] might seem concerning, but it is actually due to a pickup in workers reentering the labor market. This expansion has continuously disappointed on wage and pay gains, but its ability to pull more and more workers into the labor force is astounding."

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Nod to the Weather

Unseasonably mild January temperatures helped the jobs numbers, experts said.

"January's warmth had an effect," said Josh Wright, chief economist for recruitment software firm iCIMS in Holmdel, N.J. "People reporting they couldn't work due to weather was 226,000, versus an average of 347,000 over the prior 10 years. That no doubt supported construction, which had a very strong month with 44,000 jobs added [well above its 2019 average of 12,000], and leisure and hospitality, which held steady at 36,000 new jobs."

"We weren’t surprised to see an uptick in construction with a boost from warm weather in many states," said Michael Stull, senior vice president at staffing and recruiting firm ManpowerGroup North America. "Our latest talent shortage survey, published today, finds talent shortages in the U.S. have tripled in a decade, with skilled trades workers the hardest jobs to fill."

The service sectors continue to be the rock for the labor market, adding 174,000 jobs, said Andrew Chamberlain, Glassdoor's chief economist. "Over 47,000 jobs were created in the booming health care [and social assistance] sector alone in January," he said. "Manufacturing, however, lost 12,000 jobs, continuing a long streak of underperformance due to trade uncertainty."

Julia Pollak, a labor economist at employment marketplace ZipRecruiter in Santa Monica, Calif., attributed the losses in manufacturing to industry struggles amid slow economic growth abroad, the Trump administration's tariff wars, and widening fallout from Boeing's 737 Max crisis.

Wright noted that "there have been several signs that manufacturing may be set to rebound—or at least was before the coronavirus struck, so stay tuned both for payroll revisions and future factory data."

Retail posted a negative tally (-8,300 jobs) in January, while professional and business services grew by 21,000 jobs and transportation and warehousing added 28,300 new jobs.

Room to Grow

The share of U.S. workers joining the labor force ticked up in January to 63.4 percent from 63.2 percent the previous month. The labor-force participation rate has remained steady in recent years, defying expectations that Baby Boomer retirements would drag it down.

"The labor force participation rate for people in their prime working years increased in January, but remains below previous highs," Bunker said. "All signs point to a further pick up in this rate if the labor market continues to grow."

Elise Gould, senior economist at the Economic Policy Institute in Washington, D.C., pointed to the increases in the labor force participation rate as well as the employment-to-population ratio [from 80.4 percent to 80.6 percent, the highest since 2001] as an indication that the unemployment rate rose for the right reason. "More people keep getting pulled in off the sidelines as we get closer to full employment," she said.

Pollak said that both men and women saw gains, but female participation is rising faster, and "young women are making particularly impressive gains."

Wright said the report renews questions about how long the labor market can sustain such robust job growth. Former Federal Reserve Chair Janet Yellen is "getting vindicated for her diagnosis that there has been and apparently is a lot more slack in the labor market than the unemployment rate suggests."

"As job demand continues to beat expectations, companies need to understand the priorities of workers to compete and offer flexibility over when and where work gets done, well-being to balance work and life, and challenging work to build new skills," Stull said.

Boost for Wages

Average hourly earnings increased by 7 cents in January to $28.44, an increase of 3.1 percent from a year earlier. After accelerating modestly in 2018, pay has grown at an annual pace of 3 percent or higher for 18 consecutive months after the rate was raised for December 2019 from 2.9 percent to 3 percent.

"This is the 23rd month in a row when unemployment has been at or below 4 percent, but unfortunately, this tightness isn't translating into stronger wage growth," Gould said. "Wages rose year-over-year in January, likely reflecting the increases in state and local minimum wages that took effect that month. Overall, wage growth is still slower than expected in an economy that has had historically low unemployment and remains the most important indicator to watch in 2020."

Past Numbers Revised Down—By a Lot

Annual revisions released in the report based on state unemployment insurance tax records showed that reported job growth between April 2018-March 2019 was adjusted downward by 514,000 jobs to 150 million.

"While revisions in most years tend to be relatively small, this year's revisions came in much higher," Gould said. "There were over half a million fewer jobs created than initially reported. Over the last 10 years, preliminary revisions averaged about 92,000 less jobs than reported, so over 500,000 is very large in comparison."

She added that after revisions, average monthly job growth in 2019 was 175,000—weaker than 2018's average growth rate of 193,000. For all of 2019, employers added just over 2 million jobs, a downward revision of 12,000.

"The revisions make 2018-2019 growth look much more muted," Zhao said. "Revisions indicate 2018 job gains were overstated, but not by enough to wipe out the surge in jobs added that year. While 2019 employment was revised down, average monthly job gains were basically unchanged."

Of particular note, employment growth in February was revised down to 1,000 jobs added, "just barely keeping the longest continuous streak in payroll gains in American history alive [at 112 months,]" Zhao said.

Looking at the revisions by industry, 184,000 jobs were subtracted from leisure and hospitality, 159,000 from retail and 156,000 from professional and business services, while 60,000 jobs were added to transportation and warehousing, showing the continued growth of ecommerce operations.

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