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U.S. job growth likely slowed in January

By Reuters | February 5th 2016
By Reuters | February 5th 2016

U.S. employment gains likely slowed in January as the boost to hiring from unseasonably mild weather faded, but an expected rebound in wages and a steady jobless rate will suggest the labor market recovery remains firm.

Nonfarm payrolls probably increased by 190,000 jobs last month, according to a Reuters survey of economists.

Though that would be a sharp step-down from the 292,000 jobs created in December and the average 284,000 positions per month in the fourth quarter, it would largely reflect payback after the warmest temperatures in years bolstered hiring in weather-sensitive sectors like construction.

January employment will also lose the lift from the hiring of couriers and messengers, which was buoyed in November and December by strong online holiday sales.

"Payroll growth has been running above trend over the past three months," said Dana Saporta, an economist at Credit Suisse in New York. "It's reasonable to expect a slower pace of payroll growth in the January data. Anything close to forecast will provide further evidence the labor market is still very strong."

But coming in the wake of an abrupt slowdown in economic growth in the fourth quarter and a sharp stock market sell-off, the Labor Department's closely watched employment report could add to concerns the U.S. economic outlook was deteriorating.

The data will be released on Friday at 0830 a.m (1330 GMT).

Despite the expected slowdown in job growth, the unemployment rate was forecast holding steady at a 7-1/2-year low of 5 percent for a fourth straight month. Federal Reserve Chair Janet Yellen has said the economy needs to create just under 100,000 jobs a month to keep up with growth in the working age population.

Against the backdrop of tightening financial market conditions, a deceleration in employment growth would further undercut the case for a Fed interest rate hike in March. The U.S. central bank raised its short-term interest rate in December for the first time in nearly a decade.

"We should recognize that the fourth quarter (job growth) was bloated by favorable weather conditions and January was not," said Ray Stone, an economist at Stone & McCarthy Research Associates in Princeton, New Jersey.

"If I were on the Federal Reserve's policy committee, it would not really change my mind. Markets have been turbulent, financial conditions are less accommodative now ... I may be less inclined to tighten now that I was in December."


The economy grew at a 0.7 percent annual rate in the fourth quarter, restrained by headwinds that included a strong dollar and efforts by businesses to sell off inventory.

Even with slower job growth, wages are expected to rebound after holding steady in December. Average hourly earnings are forecast increasing 0.3 percent.

Nonetheless, the year-on-year gain in earnings is expected to drop to about 2.3 percent from 2.5 percent in December as the unusually strong wage gains seen in January 2014 drop out of the picture. But with the jobless rate in a range most economists associate with full employment, wage growth is expected to pick-up this year.

With its January employment report, the government will publish its annual "benchmark" revisions and update the formulas it uses to smooth the data for regular seasonal fluctuations. It will also incorporate new population estimates.

In an early benchmark estimate last year, it said the level of employment in March of last year was likely 208,000 lower than it had reported. The shift in population controls will mean figures on the labor force or number of employed or unemployed in January will not be directly comparable to December.

The labor force participation rate, or the share of working-age Americans who are employed or at least looking for a job is near four-decade lows. Low participation could crimp job growth as the supply of labor shrinks, unless a significant rise in wages lures more people back into the labor force.

In January, employment gains were likely concentrated in the services sector, with mining probably losing more jobs and manufacturing reversing some of December's gains.

Mining payrolls fell 129,000 in 2015 and the sector has lost about half of the jobs that were added in the prior five years.

Further losses are likely after a report on Thursday showed energy firms in January announced plans to lay off 20,246 workers. Oil prices have plunged about 70 percent in the last 18 months, forcing firms like oilfield services provider Schlumberger (SLB.N) to slash their workforce.

Construction payrolls growth likely cooled after increasing by 128,000 jobs in the fourth quarter. Courier services hiring also probably slowed. Retail employment likely remained modest and could weaken in months ahead after a number of retailers, including Walmart announced dozens of store closures.

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