U.S. employers added a seasonally adjusted 225,000 jobs in January, a better-than-expected increase that shows the labor market remains solid and suggests the Federal Reserve will remain on hold.
The latest monthly hiring increase, reported by the Labor Department, is up from a more modest increase in December and topped the 165,000 economists surveyed by Bloomberg had predicted. The average payroll gain over the past three months is 212,000, up from an average 168,000 in the previous three months but down from an average 257,000 in the same period last year.
Despite the upside payrolls number, investors were disappointed. Expectations for a Fed rate cut have risen in recent weeks as the deadly coronavirus outbreak spreads and the trade war continues to hit certain sectors. The January jobs numbers undermine those Fed hopes.
In midday trading, the S&P 500 dropped 6 points, or 0.2%, to 3340, while the Dow Jones Industrial Average declined 164 points, or 0.6%, to 29218.
Meanwhile, some analysts and economists say the January data, in combination with a downside annual revision that showed more than a half a million fewer jobs were created in the most recent year, isn’t as hot as it looks on the surface.
“Net, net, the monthly employment report was good [but] not great,” said Chris Rupkey, chief financial economist at MUFG. That sentiment helps explain why U.S. Treasuries rallied on the report.
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“January’s better-than-expected jobs report is well-timed in that it boosts economic confidence just when coronavirus fears had investors questioning the growth outlook,” said AIec Young, managing director of global markets research at FTSE Russell. “That said, stocks are overbought after a huge rally, some of which has been predicated on hopes for a June Fed rate cut which now seems highly unlikely.”
Payrolls got a boost from unseasonably warm weather, which spurred more construction hiring in particular. Jobs in that sector grew by 44,000, compared with the previous six-month average of 11,000. Investors had a clue from payroll processor ADP on Wednesday, which reported a much better than expected increase in private payrolls largely due to mild temperatures. Still, factories continued to shed jobs and cut payrolls by 12,000 during the month.
The unemployment rate in January ticked up slightly from a half-century low, to 3.6%. The increase was for good reason, though, as it was driven by a rise in the labor-force participation rate. That rate measures the number of people available for work as a percentage of the total population, and it rose to 63.4% last month from 63.2%. That’s the best rate since June 2013 and it suggests slack continues to be wrung from the job market.
Wages, meanwhile, disappointed. From December, average hourly earnings rose 0.2%, below an expected 0.3% pace. Wages rose a slightly better-than-expected 3.1% on a year-over-year basis, but that was because a low print from January 2019 fell out of the calculation.
Included in Friday’s report were revisions to the level of payrolls for the year ending March 2019. Investors knew from a preliminary estimate that a huge downward revision was in store, and that change was a bit worse than expected. The Labor Department said 514,000 fewer jobs were created than initially reported.
January jobs data provided reassurance that the record-long economic expansion still has room to run, said Lydia Boussour, senior U.S. economist at Oxford Economics. “But this latest health report also points to a maturing labor market with 2019 job creation cooling to its slowest pace since 2011,” she said, adding that the benchmark revisions “indicate this labor market isn’t as youthful as it has pretended to be over the last two years.”
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