Slower U. S. job growth raises questions
Wages rise as payrolls grow by 151,000. Mixed data could weigh on Fed’s rate decision.
Though unemployment dropped to its lowest rate in eight years, investors are wary about American industrial production.
WASHINGTON — For the last two years, America’s job- creation machine has been like “The Little Engine That Could,” chugging ahead with “I think I can, I think I can” regardless of head winds at home or abroad.
The nation added 3 million jobs in 2014, making up all the ground lost in the Great Recession, and then piled on another 2.7 million jobs last year. All while the broader economy, as measured by the gross domestic product, grew at a relatively lackluster pace.
But the January jobs report, released Friday, suggests that the ever- dependable locomotive for the U. S. economy has encountered a hill that slowed it sharply.
The question now is whether it is just moving through an unusually steep patch or has finally met a hill it cannot conquer. The answer probably won’t be known for a couple of months, but Friday’s report has further clouded the outlook for investors and the Federal Reserve’s interest rate policy.
The Labor Department said that employers added just 151,000 jobs last month, down from an average monthly gain of 283,000 in the fourth quarter of last year.
Economists caution that one can’t make too much of a single month’s data, especially in the winter when weather can skew payroll statistics. Unseasonably warm temperatures in December probably inf lated hiring that month in construction, for example.
Besides, just over 150,000 new jobs should be more than enough to absorb growth in the workforce. And January’s gains, while below expectations, still nudged the unemployment
rate to 4.9%, the lowest in eight years.
Also, there was encouraging news for many who have jobs: Average hourly wages picked up at the start of this year, to a 2.5% annual growth rate, as the supply of available workers tightened. Some of that ref lected a bump up in the minimum wage in a number of states and localities, affecting about 4.6 million workers.
On the other hand, the drop- off in job growth was well below analysts’ forecast of 190,000. And the slowdown comes at a time of mounting worries about whether the American economy can continue to withstand a host of other pressures:
From China and Japan to Western Europe to Brazil and South Africa, the global economy is slumping. A strong dollar is making U. S. products more expensive for overseas buyers. Depressed commodity prices, including oil, may be helping consumers, but they have hurt U. S. corporate earnings, stock markets and manufacturing.
“The job market has hit an inf lection point downshifting to slower gains,” said Sung Won Sohn, a former White House and bank economist who tracks the economy from Cal State Channel Islands.
He said it was too early to tell whether hiring would falter, but noted that up until now, the sturdy job market had been the exception while other economic indicators had been f lashing warning signs, especially American industrial production.
“That’s what we’ve been hanging our hats on,” he said of the labor market. And so has the Fed, he said, adding that the central bank should hold off in raising rates at its next meeting in March.
Already, Sohn and other economists, who began the year forecasting GDP growth of 2.5% or higher for 2016, have ratcheted back projections to 2% or less, also in part because of tighter credit conditions and an undesirable buildup of inventory. Many economists also have raised their odds for recession, although they remain fairly low for now.
“If employment goes, then confidence in the economy is shaken,” Sohn said.
Other economists were more optimistic about Friday’s employment data. Besides rising wages, they noted that the householdsurvey part of the report showed increases in the percentages of the working- age population that is employed as well as those participating in the labor force. Those shares remain low by historical standards, but have recently started to inch up.
“The household survey confirms the underlying health of the labor market,” said Sophia Koropeckyj, a labor economist at Moody’s Analytics. “The labor market is quickly approaching full employment with the unemployment rate falling below 5%,” she wrote in a research note to clients. “Fewer workers lost their jobs and the number working part time involuntarily has come down.”
The January payroll job numbers were not as encouraging.
Two- thirds of the 151,000 net job increases last month came from two industries — retailers and restaurants. Both pay relatively low wages, although the rapid growth at food services has helped lower the Latino unemployment rate nationally to 5.9% in January, the lowest since late 2007. Latinos make up 16% of the total workforce but account for 25% of the food services industry, said the National Council of La Raza.
U. S. manufacturing add- ed a surprisingly strong 29,000 jobs, despite declining production indications in the last four months.
One big weakness in hiring last month, however, came in the sprawling business and professional services, which includes highpaying technical jobs such as engineering and computer systems design. The sector added a small 9,000 jobs after increasing a net 60,000 staff in December. Temporary- help f irms, traditionally seen as a harbinger of broader hiring, lost 25,000 jobs last month, erasing all of the gains in the prior month.
In addition, private educational services, which have been hard hit from scrutiny over high student loan defaults, shed jobs last month, as did the transportation and warehousing sector and the oil and related mining industry.