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Watch for Downward Revisions

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Payroll employment is expected to rise by 170,000 in January, which will mark a slight pickup from the initially reported 145,000 jobs created in December. The government sector is expected to account for 5,000 of those jobs, which will leave private payrolls rising by 165,000 jobs. We are still waiting for the surge in census hires, which should show up in the spring.

The big news will come in revisions affecting April 2018 to March 2019, from which we could see about 500,000 jobs disappear, along with other revisions through 2019. Many of the losses appear to have fallen during the latter part of 2018 and the early part of 2019 but revisions are expected to suppress the annual totals for both 2018 and 2019.

Job gains are expected to be driven by hires in health care and leisure and hospitality. The health care hires largely reflect the demographics of aging and the need for more health care personnel. Food services have also remained a sector with strong growth. Professional hires should rebound after a December lull. The pace of hiring for professional services slowed fairly significantly over the past year. This category includes consultants and likely reflects the weakness we have seen in business investment.

Construction is expected to continue to gain momentum on the heels of a pickup in new home construction helped by unseasonably mild January weather. Heavy snow storms and cooler temperatures usually cause more disruptions to construction activity during the winter months than we have seen so far this year.

The weak spots in hiring are expected to be manufacturing and retail. The Institute for Supply Management (ISM) manufacturing index finally moved back above 50 in January, which signals an expansion in the sector, after it contracted during the five previous months. A large jump in orders was the primary reason for the increase. Employment in the sector continued to contract. Cuts to production of the 737 MAX at Boeing are adding insult to injury for a sector that slipped into a modest recession in 2019. The ISM survey was also taken before work stoppages related to the coronavirus in China, which could dampen prospects for a rebound in employment in the manufacturing sector in February. The spread of the coronavirus appears to be slowing, which should allow plants to provide much needed parts for U.S.-based producers by March, but risks are to the downside.

Retail has its own unique problems. Older traditional department stores just can’t compete with online retailers, especially Amazon. Another surge in store closings was announced in the wake of the holiday season in January and is expected to show up as a loss in retail hires. The lackluster performance of consumers in December is another factor.

Average hourly earnings are expected to rise by 0.2%, which will keep year-over-year wage gains at a 3% pace. That marks a deceleration from a peak in wage gains on a year-over-year basis in February 2019. Wage gains among lower paid workers are being tempered by a slowdown in wage growth further up the economic food chain, among managers.

We are also seeing a split between the pace of acceleration in wages in the goods and the services sectors. The slowdown in services has been broad-based. The largest deceleration is occurring in the information sector, which includes Silicon Valley. Wages in the information sector slowed to a 2.5% annual pace in December, less than half the pace of a year ago.

Separately, the unemployment rate is expected to hold at 3.5% for January. The consumer sentiment and consumer confidence surveys both showed an improvement during the month. A rise in the ease with which people found jobs was a primary driver of those gains. That suggests that we will see a modest increase in participation in the labor force, which should keep the unemployment rate from moving down further. The labor market still has a lot more prime-age workers, particularly men, sitting out this expansion compared to the boom of the 1990s.

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