Headline nonfarm payrolls rose by a less-than-expected 151,000 in January, versus an anticipated 190,000. Meanwhile, December change was revised downward. The unemployment rate declined to 4.9% (matching the Fed's estimate of the NAIRU), and the participation rate was again slightly higher at 62.7%. There was a small decrease of 41,000 in the group classified as "not in the labour-force," following a decline of 277,000 in December. The U6 unemployment rate (an expanded measure of unemployment that takes into account marginally attached and part-time workers) was flat at 9.9% in January. The household survey showed a sharp increase of 615,000 jobs in the month, following a gain of 485,000 in December. Meanwhile, the adjusted household survey (the BLS's attempt to make it more comparable to the payroll survey) pointed to a decrease of 190,000 in January, which was well below December's change of 673,000.
Private nonfarm average hourly earnings were 0.5% higher in January (0.3% for production and nonsupervisory workers), following an unchanged reading in December and 2.5% higher annually (just 2.5% for production and nonsupervisory workers). This was a positive increase in pay, with wages tentatively starting to show signs of increasing, but the pace is still low by historical standards. Private average weekly hours worked for production and nonsupervisory workers were flat in the month; they are also unchanged on a year ago. The 151,000 change in January's payrolls was largely due to retailing (58,000), leisure and hospitality (44,000), and manufacturing (29,000). Meanwhile, the mean duration of unemployment was again higher at 26.9 weeks, from 26.3 weeks in December.
January's increase in nonfarm payrolls was relatively solid, particularly coming up against December's strong gain. This rate is still more than enough to keep the unemployment rate heading downward. Payrolls through 2015 averaged 228,000 per month, though this rate of change is anticipated to decelerate in 2016 to a current forecast of 188,000 per month—or lower. The key risk for employment growth in 2016 is the extent to which profit margins are squeezed. While we have already been seeing some layoffs in the energy and finance sectors, the aggregate net change (as today's report shows) is still quite positive. What we will be watching very closely, however, is developments in indicators such as initial jobless claims and layoff announcements for signs of weakness. So far, these remain solid. One major ongoing concern has been the lack of much progress in the participation rate and the employment-to-population ratio, both of which are telling us that capacity remains in the labour-force. While this month's employment report might fractionally increase the possibility of the Fed raising rates again this year, there is still no rush for it to do so. We look forward to Janet Yellen's biannual Congressional Testimony (a.k.a. the Humphrey-Hawkins Testimony) next week for the Fed's take on the current economic landscape.
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Richard de Chazal, CFA is a London-based macroeconomist covering the U.S. economy and financial markets.