Despite a weak January, job market is solid
U.S. employers added a smaller-than-expected 111,000 jobs last month, the government reported Friday, but large upward revisions for hiring in previous months suggested the job market remained tight amid a rebounding economy.
Economists had expected payrolls to increase by 150,000 in January. But jobs for the final quarter of last year were revised upward by 104,000, bringing December’s total to a robust 206,000. And jobs for the 12 months that ended in March 2006 were revised higher by 752,000.
Such results reflect an economy with plentiful jobs and better pay even for less-skilled workers, boosting consumer confidence and spending, some economists said.
“This economy is strong, it’s vibrant, it’s healthy,” said Bernard Baumohl, executive director of Economic Outlook Group, a Princeton Junction, N.J.-based forecasting firm.
However, other analysts said lingering weaknesses, such as the moribund housing market, could keep the economy from gaining too much steam.
Although construction added 22,000 jobs last month after a 10,000 increase in December, that gain came from commercial real estate. Residential home building fell 19% last quarter and 18% in the third quarter.
“That’s hardly a glowing assessment,” said T.J. Marta, an economics and fixed-income strategist for RBC Capital Markets in New York. “It just means you’ve staunched the bleeding.”
Unemployment rose slightly last month to 4.6% from 4.5% in December, driven up in part by layoffs in manufacturing.
The average worker saw a modest hourly wage gain of 3 cents, a 0.2% increase over December that fell below expectations.
That eased fears that recent wage gains could spur inflation, after the Federal Reserve’s decision this week to leave its benchmark short-term interest rate unchanged at 5.25%.
But on a 12-month basis, workers are easily beating inflation. Average hourly earnings rose 4% in the 12 months that ended in January, 1.6 percentage points ahead of inflation.
Stock investors took the report in stride Friday, with the Dow Jones industrial average falling slightly but other indexes gaining.
Economist Baumohl noted that the jobs report came on the heels of a Commerce Department report Wednesday that showed growth in the fourth quarter surging at 3.5%, ahead of what’s expected during an economic expansion.
Baumohl expects the economy to continue growing at 3% to 3.5% for the rest of the year, driven by steady consumer spending and a recovery of the beleaguered housing sector. That could prompt the Fed to raise its benchmark interest rate a quarter of a point in June, he said.
However, RBC analyst Marta sees the economy in the midst of a “very, very soft landing” and expects consumer spending to slow this quarter, reducing growth to 2.3% and leading the Fed to cut interest rates in June.
Jan Hatzius, an economist at Goldman, Sachs & Co. in New York, also expects a Fed rate cut in June as growth slows to 2% to 3% this year.
“There’s a little more slack emerging in the labor market,” he said, noting that a weak housing sector could lead to less hiring in construction come spring.
But Jared Bernstein, an economist at the left-leaning Economic Policy Institute in Washington, called the weakness in Friday’s report “an anomaly.” He said the labor market was “fundamentally tight” and could still deliver wage gains to the average American worker without fueling inflation.
“Any hawkish Fed members should pull in their claws,” he said.
In other economic reports Friday, the Commerce Department said new orders at U.S. factories rose a larger-than-expected 2.4% in December. And the Reuters/University of Michigan final index on consumer sentiment in January rose to 96.9 from 91.7 in December. The January reading was the highest since December 2004.