Today's Jobs Report: Way Better Than Expected
As a General Principal, I Don’t Like Surprises
I don’t like surprises. For instance, when my sister was born two days prior to my 6th birthday, I was upset. It wasn’t about the loss of attention or even financial considerations, but the fact that I didn’t have a birthday party that year. My sibling relations have been strained ever since.
I was also surprised today, by the employment report. I also didn’t love that. On Wednesday, I sent out a post warning that this could be a surprisingly poor payroll jobs report. A lot of people were out sick during the survey period, the ADP employment report indicated a 300,000 decline in private employment in January, and the general sentiment was that the BLS’ payroll employment data would indicate weakness largely for methodological reasons.
Alas, it turned out to be a splendid employment report, and if I could set aside my ego, I would be delighted. Payrolls in America expanded by 467,000 in January, and there was a staggering +311,000 revision to December’s headline number (which is now +510k on a monthly basis as opposed to +199k). Another pleasant surprise.
Because of methodological considerations regarding the BLS’ establishment survey, I thought the household survey would be a more reliable indicator this month. That survey indicates that America added a staggering 1.2 million new jobs in January. What’s more, approximately 1.4 million people entered the labor force.
The labor force participation rate rose to 62.2%, up 0.3 percentage points from December and an indication that greater difficulty paying bills (think inflation), vaccinations, and kids in school are inducing more people to return to the labor market. Many of those returning to the workforce were above the age of 55, which strikes me as especially good news since many of these workers can bolster productivity growth with their experience and deep knowledge.
The unemployment rate stands at 4%. The number of unemployed Americans expanded for the first time since April, which is actually a positive from the perspective of the economy’s 2022 growth potential.
Two big points here:
One: this economy has plenty of momentum. I know in this cynical world of fractious politics, pandemic, and Ravens’ losing streaks, it’s become hard to believe that anything good can happen, but even restaurant employment is up, and by more than 210,000 since November, representing a 1.9% increase over a short period. Bon Appetit!
Second: I (and virtually everyone else) expected January to represent a statistical hiccup. The fact that it wasn’t suggests that the economy is stronger than I thought. It can wrestle with a lot of headwind, including ongoing and expected monetary tightening.
Just to give you a sense of how right I was to be wrong, in a survey of 76 Wall Street analysts, not a single one predicted even half of January’s payroll employment growth. There are methodological issues at work, and it wouldn’t surprise me (there’s that word again) if January’s initial estimate is revised downward. Nonetheless, even that wouldn’t alter the narrative, which is that a steadily reawakening economy is set to plow ahead this year.
As always, you can read my in-depth thoughts regarding the construction industry’s labor market at Associated Builders and Contractors.
Three (Somewhat) Key Takeaways
The labor force participation rate for Black Americans increased by more than a percentage point from December to January (from 60.8% to 62% despite NFL efforts) and is now the same as the LFPR for White Americans. A year ago, the White LFPR was 1.1 percentage points higher than the Black LFPR.
Employment at hospitals is up just 0.2% (+8,700 jobs) over the past year. There’s a shortage of nurses and plenty of evidence of burnout. Accordingly, this situation may not improve anytime soon, which ultimately translates into greater challenges in supplying quality care in both inpatient and outpatient settings.
Average hourly wages are up by $1.70 since January 2021 (+5.7%) and increased 23 cents from December 2021 to January 2022. Surprisingly (uh huh), average hours worked per week has declined by 30 minutes over the past year, perhaps in part because employers are striving to supply as much flexibility as possible in the hopes of retaining more staff.
What to Watch
Will the January employment data be revised downward, or will I be pleasantly surprised once again?
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If you rely on government data for your analytics you will be frequently misinformed. Anyone who observes how government reports are prepared will learn to give them a weighted value of less than 50% accurate. Evidence the Commerce Department's Construction put in place report's under reporting percentage and persistent disinterest in improving the measure with better data. Sprinkle your grain of salt on government reports and remember, as Jerome Powell said about inflation.....it will only last 2 months "because that's how we have it figured". There are none so blind...........good luck to all of you govdat users.