Job Creation Continued, Wage Growth Does Not: What We Learned During the Week of January 30 – February 3

Employers hired more workers during January than they had in months, but wage growth remained weak.  Here are the 5 things we learned from U.S. economic data released during the week ending February 3.

#1January featured the largest growth in employer payrolls since last summer. The Bureau of Labor Statistics reports employers had a seasonally adjusted 145.554 million on their payrolls at the end of January, up 227,000 for the month and 2.343 million from a year earlier. Private sector employers added 237,000 workers during the month while the government sector shed 10,000 jobs. The goods-producing side of the private sector added 45,000 workers during the month, led by an increase of 36,000 construction jobs. The private service sector added 192,000 workers during January, including 45,900 in retail, 34,000 in leisure/hospitality, 32,100 in health care/social assistance, 32,000 in financial activities, and 14,800 in temporary help services. The average number of hours worked weekly was unchanged during the month at 34.4 hours (January 2016: 34.6 hours). Yet wage growth disappoints again: weekly earnings edged up by 0.1% during January to $894.40 (+1.9% vs. January 2016).nonfarm-payrolls-wage-changes-020317

Based on a separate survey of households, the unemployment rate edged up by 1/10th of a percentage point to 4.8%. During the same month, the labor force participation rate grew by 2/10th of a percentage point to 62.9%. The median length of unemployment slipped by 1/10th of a percentage point to 10.2 weeks (January 2016: 11.2 weeks). The count of “involuntary” part-time workers grew during the month: the number of part-time workers seeking a full-time opportunity expanded by 242,000 to 5.840 million (January 2016: 6.035 million). Similarly, the broadest measure of labor underutilization increased by 2/10ths of a percentage point to 9.4%. This same measure was at 9.9% during the same month a year earlier.

#2The year’s 1st meeting of the Federal Open Market Committee was uneventful. To the shock of almost no one, the FOMC voted to keep the fed funds target rate at a range between 0.50% and 0.75% while leaving untouched its balance sheet policy. The policy statement released following the end of the 2-day meeting noted that the labor market “has continued to strengthen” and that the economy was expanding “at a moderate rate.” At the same time, inflation was increasing “but still below the Committee’s 2% longer-run objective.” The statement also affirmed the FOMC’s belief that inflation will move closer to the Fed’s 2% target “over the medium term” and that near-term risks to the economy “appear roughly balanced.” The FOMC vote was unanimous. The committee will next meet in March.

#3Personal spending perked up in December. “Real” Personal Consumption Expenditures (PCE) gained 0.3% during the month, following increases of 0.2% and 0.1% during the 2 prior months. The Bureau of Economic Analysis estimates real spending on goods grew 0.5%, boosted by a 1.4% bump in durable goods (think vehicles). Spending on nondurables was unchanged during the month while that on services gained 0.3%. Real spending was up 2.8% on a year-to-year basis with 12-month comparables for goods and services of +4.1% and +2.2%, respectively. Personal incomes grew 0.3% on a nominal basis while disposable spending increased 0.3% and 0.1% on a nominal and real basis, respectively. Real personal incomes had risen 2.1% over the past year. The savings rate of +5.4% was down 2/10ths of a percentage point during the month. The PCE deflator, a measure of inflation, increased 0.2% during the month and was 1.6% above its December 2015 level. Net of energy and food, the core PCE deflator inched up 0.1% during December and remained below the Fed’s 2% target rate with a +1.7% 12-month comparable. 

#4Purchasing managers report solid business activity in both the manufacturing and service sectors during January. The Institute for Supply Management said that their Purchasing Managers Index (PMI) added 1.5 points during the month to a seasonally adjusted reading of 56.0, its best reading since November 2014. This was the 5th straight month in which the index was above a reading of 50.0, consistent with an expanding manufacturing sector. All 5 components of the PMI improved during the month: employment (up 3.3 points to 56.1), production (up 2.0 points to 61.4), inventories (up 1.5 points to 48.5), supplier deliveries (up 6/10ths of a point to 53.6), and new orders (up 1/10th of a point to 60.4). 12 of 18 manufacturing sectors expanded during the month, led by plastics/rubber products. The press release noted that respondent comments were “generally positive regarding demand levels and business conditions.”

Meanwhile, the ISM’s measure for the service sector activity, the NMI, slipped by 1/10th of a point to a seasonally adjusted reading of 56.5. The NMI has been above a reading of 50.0 for 85 straight months (including 4 of the past 5 months where it has been above a reading of 56.0). 2 index components improved during the month—employment and supplier deliveries—while two others declined from the December marks—new orders and business activity/production. 12 of 18 service sector industries grew during the month, led by mining. The press release characterized respondent comments as “mixed indicating both optimism and a degree of uncertainty in the business outlook as a result of the change in government administration.”

#5A measure of consumer sentiment chilled during January. The Consumer Confidence Index from The Conference Board lost 1.5 points to a seasonally adjusted reading of 111.8 (1985 = 100). December reading of 113.3 represented a 15-year high. The decline was the result of a 6.6 point decline in the expectations index (to a reading of 99.8). The present conditions index added 6.2 points to a reading of 129.7. 29.3% of survey respondents described current conditions as “good” versus 16.1% that saw them as “bad.” The percentage of respondents anticipating an improvement in business conditions slipped by 1.6 percentage points to 23.1% while the percentage predicting conditions would “worsen” grew by 1 full point to 9.6%. The press release said even with the drop in the headline index, “consumers remain confident that the economy will continue to expand in the coming months.”

Other U.S. economic data released over the past week:
Jobless Claims (week ending January 28, 2017, First-Time Claims, seasonally adjusted): 246,000 (-14,000 vs. previous week; -42,000 vs. the same week a year earlier). 4-week moving average: 248,000 (-12.4% vs. the same week a year earlier).
Factory Orders (December 2016, New Orders, seasonally adjusted): $464.9 billion (+1.3% vs. November 2016, +3.6% vs. December 2015).
Construction Spending (December 2016, Value of Construction Put in Place, seasonally adjusted): $1.812 trillion (-0.2% vs. November 2016, +4.2% vs. December 2015).
Case-Shiller Home Price Index (November 2016, 20-City Index, seasonally adjusted): +0.9% vs. October 2016, +5.3% vs. November 2015.
Vehicle Sales (January 2017, seasonally adjusted annualized rate): 17.61 million vehicles (-4.4% vs. December 2016, -1.6% vs. January 2016).
Productivity (Q4 2016-preliminary, Labor Productivity: Nonfarm Business, seasonally adjusted): +1.3% vs. Q3 2016, +1.0% vs. Q4 2015.
Pending Home Sales (December 2016, Index (2001 = 100), seasonally adjusted): 109.0 (+1.6% vs. November 2016, +0.3% vs. December 2015).
Agricultural Prices (December 2016, Prices Received by Farmers (Index (2011 = 100)), seasonally adjusted): 88.4 (+5.7% vs. November 2016, -1.7% vs. December 2015).

The opinions expressed here are not necessarily those of Kevin’s current and previous employers. No endorsements are implied.

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