Nonfarm Payrolls Clock Strongest Growth in Four Months

US nonfarm payrolls rose by 227,000 jobs, beating expectations of 175,000

Data released by the Labor Department on Friday, February 03rd, 2017, showed that US job growth surged more than expected in January 2017 as construction firms and retailers ramped up hiring. Nonfarm payrolls increased by 227,000 jobs, the strongest job growth in four months, and followed a 157,000 rise in December 2016, beating market expectations of 175,000. The unemployment rate, however, rose one-tenth of a percentage point to 4.8%.

However, wages barely rose, posing a challenge to the Trump administration as it seeks to deliver 4% annual gross domestic product growth, largely on the back of a plan to cut taxes, reduce regulations, increase infrastructure spending, and renegotiate trade deals in favor of the US. However, with the economy nearing full employment, some economists are skeptical of the 4% growth pledge. Annual GDP growth has not exceeded 2.6% since the 2007-08 recession.

Meanwhile, Trump has proposed an expansionary fiscal policy stance, which could increase the budgetary deficit. Combined with faster economic growth and a labor market that is expected to hit full employment in 2017, it could raise concerns about the Fed falling behind the curve on interest rate increases. The Fed raised its benchmark overnight interest rate in December 2016 by 25 basis points to a range of 0.50% to 0.75% and forecast three rate hikes in 2017.

Wage growth disappoints

Wage growth was disappointing, with average hourly earnings increasing by only three cents or 0.1% to $26.00, following a six-cent rise in December 2016, and below expectations for a 0.3% rise. Wage growth grew 2.5% from January 2016, the weakest since August 2016. December’s wage gain was revised down to 0.2% from the previously reported 0.4% increase. Despite this, economists feel that the labor market is tightening and could hopefully soon spur faster wage growth. Economists say a wage growth of between 3% and 3.5% is needed to lift inflation to the Fed’s 2% target. If the sluggish wage growth persists, it would suggest little urgency from the Fed to tighten monetary policy.

On February 01st, 2017, the Fed kept its benchmark overnight interest rate unchanged in a range of 0.50% to 0.75%, saying that it expected labor market conditions would strengthen further. Along with its January employment report, the government also published its annual benchmark revisions and updated the formulas it uses to smooth the data for regular seasonal fluctuations. It also incorporated new population estimates. As the labor market nears full employment, the pool of workers is shrinking, which is slowing job growth.

Job growth led by Construction, Retail hiring

Nearly all sectors of the economy added jobs in January 2017. Retail trade employment increased by 46,000 over the month and by 229,000 over the year. Three industries added jobs in January 2017 – clothing and clothing accessories stores (+18,000), electronics and appliance stores (+8,000), and furniture and home furnishings stores (+6,000).

Employment in construction rose by 36,000 in January 2017, following little change in December 2016. Residential building added 9,000 jobs over the month, and employment continued to trend up among residential specialty trade contractors (+11,000). Over the past 12 months, construction has added 170,000 jobs.

Financial activities added 32,000 jobs in January 2017, with gains in real estate (+10,000), insurance carriers and related activities (+9,000), and credit intermediation and related activities (+9,000). Financial activities added an average of 15,000 jobs per month in 2016.

In January 2017, employment in professional and technical services rose by 23,000, about in line with the average monthly gain in 2016. Over the month, job gains occurred in computer systems design and related services (+13,000). Employment in food services and drinking places continued to trend up in January (+30,000). This industry added 286,000 jobs over the past 12 months. Employment in health care also continued to trend up in January 2017 (+18,000), following a gain of 41,000 in December 2016. The industry has added 374,000 jobs over the past 12 months.

Employment in other major industries, including mining and logging, manufacturing, wholesale trade, transportation and warehousing, information, and government, showed little change over the month. The average workweek for all employees on private nonfarm payrolls was unchanged at 34.4 hours in January 2017.

The labor force participation rate, or the share of working-age Americans who are employed or at least looking for a job, was at 62.9% in January 2017, the highest level since September 2016. The employment-to-population ratio was at 59.9% in January 2017, the highest level since March 2016. A broad measure of unemployment that includes people who want to work but have given up searching and those working part-time because they cannot find full-time employment rose two-tenths of a percentage point to 9.4% in January 2017.

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