U.S. Jobs +304,000 in January – Is the Fed Being Too Timid?
On Wednesday of last week, January 30th, the Federal Reserve chose not to increase its policy-setting interest rate, the federal funds rate. It remains in a range of 2.25% to 2.50%.
The Fed was persuaded to stay neutral by uncertainty about economic prospects due to: (1) the knock-on effects of the partial government shutdown, which may or may not be definitely over, depending on how the President will react in a couple of weeks to the border-crossing financing proposals of a special bipartisan committee; (2) a trade war with China, which may or may not be soon resolved; and (3) by slowing economies in Europe and Asia.
If the board members of the Fed had any doubts about the ability of the U.S. economy to sustain its remarkable record of jobs creation achieved over the past several years, however, those concerns were put to rest by today’s Employment Situation report from the Bureau of Labor Statistics (BLS).
According to the BLS, seasonally adjusted total employment in America rose by a stunning +304,000 jobs in January. Due to an increase in the participation rate, the measure of out-of-work individuals reinitiating job searches, the unemployment rate rose slightly to 4.0%, from 3.9% in December.
The nation’s construction sector added 52,000 jobs in this year’s first month. Most of that increase, +34,000, was carried out by ‘specialty trade contractors’ (i.e., the ‘subs).
Hiring by nonresidential subcontractors was +19,000; by residential subcontractors, +15,000.
Other industrial sectors with outsized payroll expansions in January were: ‘leisure and hospitality’, +74,000; ‘education and health services’, +55,000; ‘professional and business services’, +30,000; and ‘transportation and warehousing’, +27,000.
The jobs gain in ‘retail trade’, which has often been sluggish of late, surprised on the upside in January, at +21,000.
Firms engaged in ‘financial activities’ (+13,000) and ‘information services’ (-4,000) were less enthusiastic in their employment practices in the latest month.
Government hiring was +8,000, all at the local level (+9,000), as Washington stood nearly pat (+1,000) and the state governments (-2,000) reduced payrolls. Workers affected by the shutdown didn’t lose their jobs, they temporarily lost their paychecks, which was an often gut-wrenching problem, on a personal and family level, nonetheless.
The hot labor market inevitably leads to questions about wages. Evidence of labor unrest is increasingly cropping up, with teachers in many locations being most vocal so far in demanding better working conditions and compensation. Included in the settlement of the teachers’ strike in Los Angeles was an immediate pay raise of +6.5%.
Table B-3 in the latest Employment Situation report records year-over-year increases of +3.2% for average hourly earnings and +3.5% for average weekly earnings across all jobs in the U.S. economy in January. The comparable figures for construction workers, as a subset of ‘all-jobs’, were a more modest +2.8% hourly, but a much steeper +4.9% weekly.
Excluding supervisory personnel from the calculations (Table B-8 of the Employment Situation report) yields +3.4% hourly and +3.7% weekly for all jobs, with the construction subset, where there is known to be a critical undersupply problem, a somewhat restrained +3.3% hourly, but a heartily robust +5.6% weekly.
Table 1 and Graph 1 set out in which states compensation rates for construction workers have been soaring the highest. The data is based on average hourly earnings, which is more stable than weekly earnings. Nevertheless, because year-over-year hourly earnings still bounce around quite a bit, ‘smoothing’ has been applied in the form of taking three-month averages of year-over-year results for October 2018 through December 2018. December 2018 is the latest month for which data at the state level is available.
The states with the fastest increases in hourly construction wages have been: South Carolina, +9.5%; Nebraska, +8.6%; Colorado, +8.1%; Wisconsin, +7.8%; Iowa, +7.6%; and New Jersey, +6.7%.
The states with the slowest year-over-year changes in hourly construction work compensation have been: Maine and Louisiana, both +1.6%; Maryland and Alaska, both +1.3%; Mississippi, +1.0%; Oregon, +0.5%; and Kentucky, -2.6%.
The stock markets responded positively to the Fed holding the line on interest rates. But only a look back from some future date will determine whether such a course of nonaction has been the right one, or too timid. Hindsight is the bane of central bankers.
Graph 1: U.S. Construction,
*Based on not seasonally adjusted (NSA) data and can be volatile; ”smoothed’ by taking average Y/Y increases during the latest 3 months (i.e., Oct 2018 to Dec 2018).
Data Source: Bureau of Labor Statistics (BLS).
Table 1: Construction Sector
Based on not seasonally adjusted data average Y/Y increases during the latest 3 months. (i.e., Oct 2018 to Dec 2018).
Data Source: Bureau of Labor Statistics (BLS).
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