|
|
Get Four
|  | FEBRUARY 6, 2006
By Michael Englund January Jobs: Better than You ThinkWhile nonfarm payrolls didn't increase as much as expected, other components of the U.S. employment report paint a brighter economic pictureWe didn't get the big jump in job growth that had been widely expected in the January employment report, released Feb. 3, with the headline nonfarm-payrolls figure rising 193,000, vs. economists' median forecast of 248,000. But we got solid growth if we count the 81,000 jobs that were added via revisions to the November and December totals, and strength in every other major indicator from the report. Indeed, the other components illustrate the impressive strength of the U.S. jobs machine. The unemployment rate dropped to 4.7% (median 4.9%) from 4.9%, while civilian employment rose 295,000. The average workweek held at December's upwardly revised 33.8 hours (median 33.8). Average hourly earnings jumped 0.4% (median 0.3%), with the December earnings figure revised up to the same hefty growth rate. Hours worked are stronger than previously reported in the fourth quarter, and are on path for a robust first-quarter performance, alongside earnings, the workweek, and civilian employment. Strength in these measures will drive all the major economic reports for the quarter. The data support our forecasts for a strong 0.6% gain in personal income for the month, alongside a weather-depressed 0.1% gain in industrial production. HURRICANE HIT. The report included the annual benchmark revisions to the establishment data (i.e., from businesses, institutions, government entities, etc.). The new data still show a fairly steady trend in payroll growth of roughly 170,000 to 180,000 over the past two years, but with a job-growth "undershoot" in September and October that's being followed by an "overshoot" unfolding in the November-to-March period. With the revised data, the bounce looks more like the assumptions held before the November and December employment reports. If we look at quarterly averages for payroll growth, we see that the hurricane hit depressed the third- and fourth-quarter average gains of 2005, but with a likely concentration of the bounce in the first quarter that will produce one of the two strongest quarters of the current economic expansion. We currently project a 250,000 payroll increase in February, given the continued robust trend in initial jobless claims. This implies a first-quarter payroll growth average of 219,000 -- even if the January gain doesn't exhibit the usual upward revision. The hit to payroll growth from Hurricanes Katrina and Rita was also evident in the advance report for fourth-quarter gross domestic product that is at risk of upward revision. The bounce we project in GDP growth, to 5% in the first quarter, is actually quite conservative -- given the payroll bounce unfolding in the current quarter, alongside the surprising fourth-quarter GDP undershoot that left considerable "catch up" room for the headline GDP figure. STRONG INCOME GROWTH. Though the workweek has historically contributed to cyclical growth in hours worked, the trend in this expansion is notably flat. In addition, the swing in recent quarters is counter to the hurricane-distorted swings to payrolls, with a small but temporary bounce in the fourth quarter, and a small ensuing unwinding in the first quarter. The combined effect of payroll growth and the workweek -- captured in the hours-worked index -- shows that hours worked actually posted relatively little slowing in the fourth quarter, given the counter-swing in the workweek relative to payrolls. As we have previously noted, many of the closely followed monthly releases for the U.S. economy will post growth rates that mark cyclical highs in the first quarter. Even though the industrial-production report will be severely depressed by warm weather in January, resulting from lower utility output, we still expect a 0.1% gain due to strength in the other components of the report. This will follow the big gains late in the fourth quarter that will help to boost the first-quarter growth rate. Industrial-production growth should reach a cyclical record rate of 5.8% in the first quarter. The January employment data imply a solid 0.6% gain in personal income for the month, following a likely upward revision in the 0.4% December gain, given strength in the December workweek and payroll data. Strength in income growth in January also seems to have been accompanied by a robust 0.8% headline gain in retail sales, as signaled by robust vehicle sales for the month, alongside a 0.6% gain in the ex-auto figure that should be led by surging gasoline prices and solid chain-store data. WEATHER REVERSAL. Finally, the employment data helped to confirm the dramatic swing in weather from a dismal December to a balmy January, as shown in the household-employment survey of nonagricultural workers missing work because of bad weather. You might say that January and December switched places: From a weather perspective, each reading in the last two months seemed to adhere to the other month's seasonal pattern. Because most U.S. weather-sensitive economic reports are subject to big seasonal swings through the December-to-February period, this reversal in the weather from bad to good will likely prompt big gyrations in associated economic reports -- particularly in the closely watched housing sector. Note that construction employment soared by 46,000 in January, following a restrained 5,000 increase in December. The markets will need to brace for potential big swings in all the reports whose seasonal factors are dependent on weather. In total, though the payroll figure for January failed to provide the eyepopper that the market expected, the report -- in virtually all respects -- generated robust figures that set the stage for a strong set of January and first-quarter reports. With the initial-claims data signaling continued strength into February, it appears that the Federal Reserve will be faced with solid economic news -- and likely strength in prices as well -- as it enters the March and May Federal Open Market Committee meetings. We think that the Fed will be pressed to tighten again at the March meeting. If the data remain strong after that, the market will test the mettle of new Fed chairman, with pressure to tighten again at the meeting in May.  Englund is chief economist for Action Economics
BW MALL
SPONSORED LINKS
Get BusinessWeek directly on your desktop with our RSS feeds.
Buy a link now! Add BusinessWeek news to your Web site with our headline feed. Click to buy an e-print or reprint of a BusinessWeek or BusinessWeek Online story or video. To subscribe online to BusinessWeek magazine, please click here. Learn more, go to the BusinessWeekOnline home page  | | |
 Copyright 2006, by The McGraw-Hill Companies Inc. All rights reserved.Terms of Use | Privacy Notice |
Printer-Friendly Version
