Today's employment report from the U.S. Labor Department delivered a hefty blow against the idea that recession risk is high for the immediate future. Private nonfarm payrolls rose by a net 257,000 in January (total nonfarm payrolls rose by a slightly lower 243,000 because of a 14,000 decrease in the government's workforce). That's the strongest monthly increase for the private sector since last April, and a tidy increase over December's revised gain of 220,000. Economists overall had been expecting a considerably lower increase of well under 200,000 for private payrolls for January. But with today's update in hand, it appears that job creation is accelerating in corporate America. Is this surprising? Not really. As I've been discussing for months, the falling trend in new weekly jobless claims has been signaling for some time that the labor market would continue to heal and perhaps grow at a moderately faster pace. Today's jobs report certainly lends persuasive support for that view.
Thanks to January's rise in jobs, the unemployment rate last month fell to 8.3% from 8.5% in December. That's the lowest jobless rate in nearly three years. It's still high, but at least it's moving in the right direction, and perhaps with some momentum. Indeed, as recently as last September the jobless rate was 9.0%. Even better, the growth in private-sector employment last month was broadly based. The cyclically sensitive goods-producing sector, for instance, posted a net 81,000 rise in January, up from December's encouraging 71,000 increase. Meanwhile, the all-important service sector, which represents the lion's share of the nation's labor force, enjoyed a robust net gain of 176,000 positions last month, building on December's 149,000 pop.
(Click chart to expand)
In short, it's hard to see the latest government figures for nonfarm payrolls as anything other than good news for expecting that the economy will continue to grow. In addition, it looks like the leading indicator of weekly jobless claims remains a reliable barometer of things to come. The persistent decline in new claims in last year's second half was too striking to ignore. And when claims dropped to a 3-1/2 year low in mid-December, that was an especially strong clue that there was momentum in the labor market, and it was one reason I wrote at the end of last year that "the risk of a new economic recession in the U.S. looks low." And last week, a broad review of the major economic indicators offered confirmation that the business cycle was in no imminent danger of falling off a cliff.
Granted, there's still plenty to worry about, starting with the falling trend in personal income and spending. This danger sign is on the top of my list of developments that could spoil the party later this year, assuming it rolls on. But if the labor market can keep growing at 200k-plus a month, that will go a long way toward slowing and perhaps even reversing the deceleration in consumption and income growth.
"The report was much better than expected in terms of indicating fundamental strength in the economy, and the strength is in the most important place in terms of contributing to momentum," advises Pierre Ellis, senior economist at Decision Economics, via Reuters. "There was a strong increase in private sector employment, widely spread. The expected demerit from the big boost in messenger/courier jobs in December did not appear. The combination of December and January shows a big jump in the usage of labor hours, signifying real growth in the economy. Income growth is moving up almost accordingly, which means an increase in cash flow to consumers."