By Moran Zhang - January’s jobs report showed another miss and barely any revision to December’s alarmingly weak payrolls, raising questions about the U.S. Federal Reserve’s next move.
The U.S. economy added 113,000 jobs in January, the Labor Department said Friday, falling well below Wall Street’s expectation of 185,000 jobs. The pace of job growth over the past three months has slowed to 154,000. That’s down from an average 194,000 monthly jobs added throughout 2013.
Meanwhile, the unemployment rate fell to 6.6 percent from 6.7 percent the month prior, hitting the lowest level since October 2008.
Average hourly wages rose 5 cents to $24.21 and the average workweek was flat at 34.4 hours. In the past 12 months, hourly wages have risen 1.9 percent.
Here are five takeaways from the employment report:
It’s a mixed bag across sectors: Manufacturing payrolls expanded by 21,000 in January and leisure and hospitality jobs grew by 24,000. Construction employment rebounded by 48,000, following a 22,000 decline in December.
Those gains were largely offset by weakness in other categories.
Retail employment fell by 13,000, while public sector employment fell by 29,000. The federal government cut 12,000 jobs, three-quarters of them due to cuts at the U.S. Postal Service. Over the past year, federal government employment has fallen by 85,000, or 3 percent, the Labor Department said.
The 6,000 dip in education and health is arguably the biggest shock, according to Paul Ashworth, Chief U.S. Economist at Capital Economics.
“The health sector has been one of the biggest contributors to job growth over the past few years, but over the past two months employment in that sector has fallen,” Ashworth said in a note to clients. “Whether this is an unexpected consequence of the implementation of the Affordable Care Act is open to question.”
Is it the bitter cold winter? It's confirmed that December’s weak showing was mainly due to the endless series of snowstorms that hit the country that month. The December job growth was revised up only slightly, to 75,000 from an initially reported 74,000. That marked the weakest month of job creation in 2013. On the positive side, the November increase was recast up by 33,000 to 274,000.
While temperatures remained bitter in much of the country last month, the week of the Labor Department's survey actually had warmer-than-normal temperatures. This could probably explain why the January number isn’t as ugly as the December showing.
“We are starting the year on a softer note,” Mark Hamrick, Bankrate.com's Washington Bureau Chief, said. “We are about half way through the first quarter and it remains to be seen whether weather continues to be quite so severe and whether there’s something that is more ominous happening in the economy that isn’t just weather.
“Once we get out of this winter patch, let’s see how the spring presents itself,” Hamrick added.
End of federal jobless benefits starting to show its effect. The good news is that January’s unemployment rate didn’t drop for the wrong reason. The labor-force participation rate actually rose to 63 percent from 62.8 percent in December, though the figure remains near a 35-year low. In other words, overall, a few more people are becoming confident about the economy and have started to job hunt again.
There's still a group of people who will likely continue to drop out of the labor force over the coming months. The January jobs report is the first to show any effect on the labor market from more than 1 million Americans losing extended federal unemployment benefits at the end of December.
Those recipients were among the long-term unemployed, having already exhausted the 26 weeks of benefits most states provide. To receive payments, they were required to be actively looking for work, and as a result were counted as part of the labor force.
Economists had predicted that a good portion of those recipients would give up looking for work after the benefit expired. The latest data could partially reflect that they've now stopped looking. The number of Americans unemployed for 27 weeks or longer fell by 232,000 in January.
The U-6, a broader measure of unemployment, fell to 12.7 percent last month. That’s down from 13.1 percent in December and 14.4 percent a year earlier. The U-6 accounts for people working part time who want full-time jobs and people who are marginally attached to the labor force.
The annual revision didn’t change much. The Labor Department also released its annual benchmark revision, which incorporates newly available tax records.
Ashworth suggested that investors should ignore the headline that the benchmark revision added 347,000 to the level of employment. “That includes 466,000 domestic service workers who were not previously counted in the payroll tally,” he said. “The ‘real’ revision was -119,000, which is a fairly modest change.”
The Fed will stick to its tapering time table. The Fed cut the monthly pace of bond-buying by another $10 billion to $65 billion at its January meeting.
In the past week, we’ve gotten a weak manufacturing report, some disappointing housing indicators and now this weak jobs report. But economists think it seems unlikely that January’s jobs report could knock the central bank off course.
The Fed is meeting in mid-March, which means they will have one more employment report to go through before that next Federal Open Market Committee meeting. It will be the first FOMC meeting that will be led by Janet Yellen, as well as the first one where she’ll have the opportunity to hold a news conference.
“So let’s see how all of February’s data look and the Fed will start to get a little bit of data for at least early March and they’ll go to that meeting with a better idea whether there is a slowdown occurring, or is it just the America being in the deep freeze,” Hamrick said.
Moreover, although the unemployment rate moved even closer to the 6.5 percent threshold the Fed has discussed as an indicator for when it will begin considering raising short-term interest rates, policy makers have also emphasized the jobless rate is one of many economic measures they study in plotting their next moves.
Barclays Capital’s Michael Gapen continues to expect the Fed to taper its asset purchases by $10 billion at each of its meetings through September and take a final $15 billion step down in October to conclude its third round of quantitative easing known as QE3.