US may grow moderately despite investment slump
US job growth accelerated in January, with unseasonably mild temperatures boosting hiring in weather-sensitive sectors, indicating the economy will probably continue to grow moderately despite a deepening slump in business investment.
The Labour Department's closely watched monthly employment report on Friday, however, showed the economy created 514,000 fewer jobs between April 2018 and March 2019 than originally estimated. The biggest downgrade to payrolls over a 12-month period since 2009 suggests job growth could significantly slow down this year.
"Strong job creation and firming wage growth in January provided reassurance that the record-long economic expansion still has room to run," said Lydia Boussour, a senior US economist at Oxford Economics in New York. "But this latest health report also points to a maturing labour market. Benchmark revisions indicate this labour market isn't as youthful as it has pretended to be over the last two years."
Nonfarm payrolls increased by 225,000 jobs last month, with employment at construction sites increasing by the most in a year amid milder-than-normal temperatures, the government's survey of establishments showed. There were also strong gains in hiring in the transportation and warehousing industry.
Economists polled by Reuters had forecast payrolls would rise by 160,000 jobs in January. Data for November and December was revised to show 7,000 more jobs created than previously reported. Job growth in January exceeded the monthly average of 175,000 in 2019.
But employment gains are expected to slow in February as the coronavirus, which has killed hundreds in China and infected thousands globally, disrupts supply chains, especially for technology companies such as Apple. The annual benchmark revisions to payrolls could attract attention amid concerns the Labour Department's Bureau of Labor Statistics, which compiles the employment data, may not be fully capturing the impact on payrolls of President Donald Trump's 19-month trade war with China, which has contributed to the longest downturn in business investment since 2009.
The downward revision in the level of employment suggests the government's birth-death model, which it uses to calculate the net number of jobs from new business and closings, is faulty. Economists say payrolls have tended to be overstated when the trend in growth is weakening.
They say the downward revisions could impact financial markets' assessments of the labor market.
Job gains in February 2019 were slashed down to 1,000 from the originally estimated 56,000.
The slowdown in job growth is blamed on worker shortages and ebbing demand for labour. Even though employment growth has slowed, the pace remains well above the 100,000 jobs per month needed to keep up with growth in the working-age population.
US stock index futures pared losses after the release of the data, while the US dollar gained against the yen and euro. Prices of US Treasuries were trading higher.
Unemployment Rate Rises
The government also introduced updated population estimates to its smaller household survey data, including employment and labor force participation. The unemployment rate is calculated from the household survey.
The new population controls meant that the January unemployment rate and other measures derived from the household survey will not be directly comparable to December data.
The government, however, provided adjusted data, which showed the unemployment rate rising one-tenth of a percentage point to 3.6 per cent in January. A broader measure of unemployment, which includes people who want to work but have given up searching and those working part-time because they cannot find full-time employment, increased to 6.9 per cent from 6.7 per cent in December, which was the lowest since the series started in 1994.
The labor force participation rate, or the proportion of working-age Americans who have a job or are looking for one, rose two-tenths of a percentage point to 63.4 per cent last month, the highest since June 2013.
The tightening labor market is steadily driving up wages. Average hourly earnings increased seven cents, or 0.2 per cent, last month after gaining 0.1 per cent in December. That lifted the annual increase in wages to 3.1 per cent in January from 3.0 per cent in December.
The average workweek was 34.3 hours for a third straight month in January.
Federal Reserve Chair Jerome Powell said last month the United States' low labor force participation, relative to those of other advanced economies, "represents more labor supply, and it may be holding down wages."
Still, wage growth is probably enough to support a decent pace of consumer spending and keep the economy chugging along. The economy grew 2.3 per cent in 2019, the slowest performance in three years, after logging 2.9 per cent growth in 2018. Growth this year is seen around 2 per cent, just above the 1.8 per cent that economists say is the speed at which the economy can grow over a long period without igniting inflation.
The construction industry added 44,000 jobs in January, the largest since January 2019, after payrolls increased by 11,000 in December. Employment in the transportation and warehousing industry accelerated by 28,000, driven by gains in the hiring of couriers and messengers.
Payrolls in the leisure and hospitality sector increased by 36,000 jobs. Healthcare and social assistance employment rose by 47,200 jobs. There were also increases in hiring in the professional and business services, and wholesale trade industries.
But manufacturing employment declined by 12,000 jobs after falling by 5,000 in December. The industry has been the hardest hit by the US-China trade war. Though Washington and Beijing signed a Phase 1 trade deal last month, US tariffs on $360 billion of Chinese imports, about two-thirds of the total, remained in place.
Manufacturing is also being squeezed by Boeing's suspension last month of production of its troubled 737 MAX jetliner. Boeing's biggest supplier, Spirit AeroSystems Holdings Inc, said last month it planned to lay off more than 20 per cent of the workforce at its facility in Wichita, Kansas because of the 737 MAX production suspension.
The mining and logging industry added no jobs last month, while retail payrolls dropped 8,300. Further job losses are likely as Macy's announced layoffs and closures this week.
Government payrolls rose by 19,000 jobs in January, with some hiring for the 2020 Decennial census.
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