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January Jobs Surge Aided by Workers Forced into Part-Time Work

RFP
Payroll employment surged 304,000 in January, after being revised down by a net 70,000 in November and December. Furloughed government workers that were given back pay were counted as on the payrolls in January, even though they weren’t paid till later. The household survey, which better reveals the stresses associated with the government shutdown, revealed a whopping half a million workers who were forced to take part-time instead of full-time jobs for economic reasons during the month, underscoring the lengths that furloughed and unpaid contractors pursued to cover their lost pay.

Leisure and hospitality employment jumped by 74,000, with more than half of those gains in food and drinking places. This suggests that seasonal layoffs were less than usual and restaurants, which have been wanting for employees, were able to increase hiring as workers idled by the shutdown scrambled to cover the shortfall from the loss of their full time paychecks. Transportation and warehousing and retail hired a combined 48,000 workers during the month, reflecting other industries that could have absorbed workers affected by the shutdown.

Construction posted a jump of 52,000, most in specialty contractors. Some of that gain could be attributed to unusually temperate weather during the week of the survey. The polar vortex is not likely to show in the jobs data for either January or February unless the bone-chilling weather returns during the week of February 12, which is the next survey period for the employment report.

Health care added 42,000 jobs, mostly in ambulatory care, reflecting ongoing increases in an aging population and their need for more care.

Average hourly earnings moved up $.03 an hour and slowed one-tenth in January from December to 3.2% on a year-over-year basis. Sustained wage growth is welcomed by workers, but it won’t be enough to trigger a jump in inflation.

The unemployment rate edged up a tenth to 4%, but again distortions due to the shutdown likely played a role. A surge in workers seeking part-time work to cover expenses during the shutdown and a jump in the number of workers forced into temporary unemployment contributed to the increase in the unemployment rate. The number of unemployed and the labor force participation rate both edged higher during the month. Look for a drop in the unemployment rate and the participation rate once the haze of the government shutdown lifts from the February data.

Bottom Line
Distortions created by the government shutdown make it hard to determine how “good” the jump in employment was in January. The Fed is wise to wait until we get more data to determine how much growth may slow in 2019. Our forecast for a moderate slowdown, with reductions in the unemployment rate holds. Wage gains are not expected to be enough to cause a noticeable jump in inflation during the month. The Fed is now expected to remain sidelined during the entire year.

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