January Employment Report Non-farm payrolls declined 17,000 in January while revisions to November and December added 9,000. The consensus expected a gain of 70,000.
Private sector payrolls increased 1,000 in January. The weakest sectors were manufacturing (down 28,000), construction (down 27,000, all of which were in home building), and professional and business services (down 11,000). Healthy sectors included education and health (up 47,000), leisure/hospitality (up 19,000), and retail trade (up 11,000). The unemployment rate fell to 4.9% versus a consensus expected 5.0%. Average hourly earnings rose 0.2% and are up 3.7% versus a year ago. Implications: On its face, today’s decline in January payroll jobs is very disappointing. However, we need to be careful not to read a book by its cover. Recent history, and the details beneath the surface, point to a healthier labor market than the headline payroll figure suggests. First, there is a history of upward revisions for recent weak reports. August 2007 was originally reported down 4,000, now estimated at +74,000; December was originally reported as up only 18,000, now estimated at +82,000. Second, the Labor Department uses a birth/death model to gauge net job creation at small firms that usually fly under the radar of the payroll survey. In January, BLS assumed these small firms lost 378,000 jobs. This is a much larger negative than usual (last year they subtracted just 175,000).
Third, the unemployment rate fell to 4.9%, while the share of adults who are working increased to 62.9% from 62.7% last month. Fourth, the BLS reported a highly unusual drop of 30,000 teaching jobs in January that may have been related to the MLK Holiday. This should be reversed next month. Finally, two days ago the ADP employment report suggested payrolls increased 130,000. We think the truth about the labor market is somewhere in between that number and today’s 17,000 decline. Overall, we do not believe today’s report signals the onset of a recession.
