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Mild Weather Boosts Job Gains

RFP
Payroll employment jumped 225,000 in January on the heels of unusually mild winter weather. Gains for November and December were revised up slightly. A large portion, about 20%, of the January gains were in the most weather-sensitive sector, construction. We saw a surprising surge in local government hires as repairs that are usually sidelined this time of year were completed. Transportation employment also picked up on the heels of milder weather. The nonseasonally adjusted data for those three categories fell in January; the declines were just smaller than usual for the month. The monthly gain in employment after adjusting for weather effects was actually weaker, closer to 130,000 than the 170,000 we were expecting. The January survey was taken well before any blows to employment due to the coronavirus.

Health care, leisure and hospitality and professional services accounted for much of the remainder of the gains. The professional services category has been slowing over the last year, which reflects the weakness in business investment; consultants are included in professional hires. Reports of layoffs at hotels and across the travel industry have increased in the wake of the drop in tourism from China. Those losses will show up in next month’s report.

Mining, manufacturing and retail trade all contracted during the month. The weakness in mining reflects the consolidation in the shale industry where bankruptcies have jumped over the last year. Manufacturing losses were concentrated in vehicles and parts. The losses in retail trade reflect the move from in-store to online shopping. Hiring for the holiday season in 2019 was limited to just one month, December. That also reflects the compressed holiday season, which started at the very end of November and was weak until the last few days before Christmas.

Average hourly earnings rose 0.2% and were up 3.1% from a year ago. The gains in January were driven by a pickup in supervisory instead of nonsupervisory workers, which had been driving gains until two months ago. The Fed is still looking for a more broad-based acceleration in wages.

Separately, the unemployment rate moved up a tick to 3.6%, but for the right reason. Participation in the labor force picked up 0.2% to 63.4%. Most of the gains came from a rise in participation by white and Hispanic men. The gains were uneven, with increases for those who have a high school or a more advanced college degree. More than 180,000 workers joined the labor force in January. That, coupled with the still subdued and uneven pace of wage gains, suggests that we still have room to run in the labor market.

Annual benchmark revisions shaved only 12,000 from seasonally adjusted payrolls for 2019. There were 365,000 fewer jobs than initially reported in 2018. The nonseasonally adjusted data suffered the largest blow. That is still better than the preliminary revisions released in August suggested for both years.

Bottom Line
The labor market was not as strong as it appeared in the payroll report for January. Unusually mild winter weather distorted the data. Look for slower job gains as the boost created by mild weather dissipates and the blow to travel and tourism from the coronavirus shows up in the February data.

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