On the negative side, with a 113k rise in January, payrolls were weaker than the 180k consensus estimate, even considering a modest 34k upward revision to the two prior months. Our forecast was 150k as we expected to see negative weather effects also in today’s report.
On the brighter side, unemployment dropped to 6.6% from 6.7% in December, and the decline was “genuine”, due to a 638k increase in employment according to the household survey. The labour force increased 523k as the labour force participation rate rose 0.2% point to 63.0%. The consensus and our forecast was 6.7%
Also on the positive side, the recent history was stronger than initially reported for payrolls. Thus the result of the annual benchmark revision to payrolls was that the level of employment in December 2013 was increased by 509k (0.4%). According to the revised data, the average monthly increase in payrolls was 184k in H2 2013, stronger than the previously reported 170k. The upward revision strengthens perceptions of an accelerating recovery in H2 2013.
On the neutral side, the average workweek was unchanged at 34.4 hours and average hourly earnings rose 0.2% on the month, both in line with expectations. On a y/y basis, average hourly earnings increased 1.9%, up from 1.8% the prior month.
No signs of negative weather effects in January
In the payrolls data, construction employment rose by 48k in January, following the 22k decline in December and a 20k average increase in the three months to November. Similarly, according to the household survey, the number of workers not at work because of weather was 262k, an 11k decline from December. Because this 11k decline is a not seasonally adjusted figure, we have to compare it with past Januarys, which have averaged a swing of +164k. The difference probably overstates the impact on payrolls, but the direction is likely telling of the weather impact on payrolls.
Implications for Fed policy
Although payrolls disappointed today we believe the Fed will remain on its tapering course, as the bar seems quite high for slowing the taper. There is still another jobs report to go before the next FOMC meeting. A solid report will likely entrench the Fed’s commitment to the current policy path.
Implications for the employment outlook
The pace of improvement in payrolls has obviously slowed in the last two months, but other labour market indicators like jobless claims and the ISM employment indices are pointing to still-solid trend in employment growth.
Hence for now, we still don’t believe that US growth has suddenly collapsed and we continue to expect faster employment growth ahead, as the drag from fiscal tightening fades.
Nordea