KEY DATA: Payrolls: +151,000; Manufacturing: +29,000; Unemployment Rate: 4.9% (down 0.1 percentage point); Hourly Wages: +0.5%/ Trade Deficit: $1.1 billion wider
IN A NUTSHELL: “No, the sky is not falling and the labor market is not weakening as the details of the employment report were just fine.”
WHAT IT MEANS: Right after the January employment report was released, a certain business network’s website trumpeted: “Ugh, job growth is slowing now, too.” Please, give me a break. Is the headline number all that matters? No! It’s the details and they don’t tell me that labor market conditions have weakened at all. Let’s start with the disappointing employment gain. The largest decline, 38,500 workers, was in educational services, of all places. Really, is that anything other than a strange number? The second largest drop, 25,200, was in temporary help workers. If that is an indication that firms are trying to lock up their workers by moving temps to full time status, I have not problems with it. And finally, 14,400 messengers and couriers lost their jobs. Hey people, the delivery companies ramped up wildly to meet the growing holiday delivery demands, so a cut back was hardly surprising or likely repeatable. And are we really worried the government cut payrolls? Meanwhile, the job gains were spread across the economy and even in places where we didn’t think were strong. For example, there was a sharp rise in manufacturing, you know, the sector that is supposed to be in recession. Nearly 64% of the manufacturing industries posted job gains, so something good must be happening there. Hiring was strong in construction, health care, professional services, finance, retail trade and restaurants. Both high paying and low paying jobs are being created like crazy. There was a huge rise in the hourly wage. Major firms said they were raising wages on January 1st and some states increased the minimum wage. But wage gains are accelerating. Hours worked rose and weekly earnings increased sharply, hardly signs of a softening labor market. Let me make one other point. In March of last year, only 84,000 new jobs were added and the nattering nabobs of negativity, as I called them then, announced that the sky had fallen. Well, the total number of jobs added in 2015 was the largest since 1999. Enough said.
And then there was the unemployment rate, which fell to its lowest level since February 2008. The labor force participation rate continues to rise after bottoming last September. While the annual statistical changes make the 2015 and 2016 not strictly comparable, it appears that the labor force rose in January as well. These are all signs of a healthy labor market.
Another number was released today, the December trade deficit, though I doubt many people paid much attention to it. With the dollar rising, exports were expected to decline, and they did. Imports rose, another sign of a solid economy as well as cheaper foreign products.
MARKETS AND FED POLICY IMPLICATIONS: The Fed members are not business website headline writers. They take their time and digest the data and what they tasted was a pretty good meal. The job weakness came in places that were either odd or not surprising. The lower unemployment rate and rising wages further support the view that the labor market is doing nothing but tightening. Clearly, there are more uncertainties today than when they raised rates in December and hinted that there could be four increases this year. But the labor market is absolutely not one of them. Thus, investors will once again have to decide if a decent economy and higher interest rates is better than a weak economy and lower rates. I will take better growth and a Fed that is slowly raising rates anytime.