Employment conditions remained on track in January, as job creation surged beyond consensus expectations to 227,000 – the best monthly tally since last July. Revisions to November and December drained 39,000 from prior estimates, but the net increase for the month still exceeded expectations by about 13,000.
The unemployment rate inched fractionally higher to 4.8 percent, as the labor force participation rate rose to 62.9. Nonetheless, this appears to be largely noise – a byproduct of revised population estimates introduced into the calculations, which reduced the pool of potential workers (the labor department’s “civilian noninstitutional population”) by about 660,000. The result is some temporary noise in the jobless rate that suggests that the month-on-month increase should be taken with a grain of salt.
Hiring in construction and temporary business service workers were particular areas of strength, helping to lift private sector hiring by 237,000 in January, even as government payrolls were trimmed by 10,000. The surge in business optimism in the aftermath of the November election and surveys of small businesses in particular indicated a growing willingness to add to payrolls in anticipation of better business conditions. Whether or not this surge can be sustained remains to be seen, and will likely depend on tangible progress in pushing through the various pro-growth elements of President Trump’s tax, stimulus, and regulatory reform agenda to keep business optimism high.
Average hourly wages were little changed in January, rising by a paltry 0.1 percent after a much sharper rise in December. Still, a 2.5 percent gain over the past year is an indication that some firming has occurred, and other measures of labor costs point clearly to rising wage pressures.
The bottom line is that job creation remains strong, and the recent acceleration bodes well for the economy and consumer sector in particular. However, stronger productivity gains – which remain frustratingly elusive – will also be needed to meaningfully lift the pace of growth and sustain corporate profits, particularly as wage pressures build.