Investors get their latest look at the state of the U.S. jobs market when the Labor Department reports January stats at 8:30 a.m. Eastern time on Friday. Here’s a rundown of what to watch for, and a look at some clues for what’s in store.
Solid, if Moderating, Payrolls
Economists surveyed by Bloomberg anticipate an increase of 163,000 in nonfarm payrolls for the start of 2020. That would be up slightly from December’s 145,000 gain but a little below the average monthly increase of 174,000 during the past year and 210,000 during 2018.
Investors have a few hints to consider. One is the initial jobless claims series, a good leading indicator of hiring. Claims have held steady in recent weeks and support expectations for steady hiring in January.
Another is the private payrolls report released Wednesday by payroll processor ADP. While investors shouldn’t make too much of the monthly ADP report as a predictive gauge for the Labor Department’s nonfarm number given differences in methodology, plenty of traders and analysts think it can be a clue.
ADP’s latest print was a blowout 291,000, boosted by mild winter weather. Ian Lyngen, head of U.S. rates strategy at BMO Capital Markets, cautions that while the predictive power of ADP for nonfarm payrolls is light, he ran a regression analysis of the release’s values over the past 10 years and says the big January ADP gain implies a private-nonfarm payrolls increase of 221,000. That’s compared with the 150,000 economists currently expect for private payrolls, and a number that high would likely result in total nonfarm payrolls of at least 200,000.
On the flip side are corporate layoffs and manufacturing employment. Corporate layoff announcements spiked in January after falling in recent months. A report from Challenger, Gray & Christmas showed job cuts announced by U.S. employers rose 106% from December, to the highest monthly total since February 2019. Most of the cuts were in the tech sector, followed by retail. That’s as factories continued to cut staff in January.
Beware Annual Revisions
Big news Friday, says Diane Swonk, chief economist at Grant Thornton, will come in the form of annual benchmark payroll revisions. The Labor Department in August issued a preliminary revision for April 2018 through March 2019 that showed a massive downshift. Employers added about 500,000 fewer jobs during that time frame than previously thought, the biggest revision since 2009.
The Labor Department on Friday will finalize that revision, along with other revisions through 2019. Many of the losses appear to have fallen during the latter part of 2018 and the early part of 2019, but revisions are expected to suppress the annual totals for both 2018 and 2019, Swonk says.
Will Wages Warm?
Economists expect average hourly earnings to have risen by 0.2% in January from a month earlier, a rate that would keep year-over-year wage gains at a 3% pace. That would be up slightly from December, when the annual rate slowed to 2.9% from 3.1% in November. Wage growth recently peaked at a 3.4% rate in February 2019.
The skew among estimates is to the upside. Eleven of the 35 economists Bloomberg polled on year-over-year wages expect a print above 3% (the highest estimate is 3.2%). Just four predict a pace below 3% (the lowest estimate is 2.8%).
Swonk notes that we’re seeing a split not just in wage gains among lower-paid workers (where they’re picking up) and among managers (where they’re slowing), but also between the goods and services sectors. The slowdown in wage gains across service workers has been broad-based, she says, but the most significant deceleration has been in the information sector, which includes Silicon Valley. Wages in the information sector slowed to a 2.5% annual pace in December, less than half the pace of a year ago, Swonk says.
Ongoing Low Unemployment
The unemployment rate is expected to hold at 3.5%, a half-century low first hit in September 2019. Swonk says a rise in the ease with which Americans found jobs in January was the primary driver behind improvements in recent consumer confidence surveys—suggesting only a modest increase in labor-force participation that should keep the unemployment rate from falling further. She adds that the labor market still has a lot more prime-age workers, particularly men, sitting out this expansion compared to the 1990s boom.
The so-called underemployment rate, meanwhile, hit a record low of 6.7% in December. That rate includes those too discouraged to look for work as well as those working part-time but would prefer a full-time job. Any further decline in this rate would suggest further labor-market tightening.
Write to Lisa Beilfuss at lisa.beilfuss@barrons.com
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February 06, 2020 at 08:00PM
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January’s U.S. Jobs Report Comes Friday. Here’s What to Watch. - Barron's
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