January Employment Report Good, But Not Great

The January Employment Report points to a continuation of about 2.0% Real GDP Growth in Q120. While Payrolls were strong,  Civilian Employment dipped and the Unemployment Rate edged up.  Technically, the benchmark revision looks like it did not impact the m/m change in Payrolls after March 2019.  Wage inflation remains subdued.

The +225k m/m increase in Payrolls is in line with the implication of the Claims data that they would speed up from December (+147k, was +145k).  The benchmark revision did not carry through to the m/m changes after March 2019 (the time of the benchmark revision to the level of Payrolls).  The net revision to the m/m changes between April and December 2019 is +92k.  Other revisions, besides the benchmark, likely played a role.

The Payroll composition shows decent gains in most industries.  A stand-out is in Construction, which jumped 44k - mostly in Specialty Trade Contractors (split evenly between residential and nonresidential).  Good weather could have played a role.  However, declines were registered in Manufacturing jobs  (-12k, mostly in motor vehicles) and Retail (-8k, more than accounted for by job cuts in general merchandise).   Early evidence from the Claims data suggest a smaller increase in February Payrolls.

The Average Workweek was steady at 34.3 Hours, not particularly high.  Along with the increase in Payrolls, it resulted in Total Hours Worked rising 0.2% m/m -- putting them 0.8% (annualized) above the Q419 average.  Adding in an estimate of productivity growth points to about 2.0% Real GDP Growth.

The uptick in the Unemployment Rate to 3.6% puts it above the 3.5% Q419 average.  The January level is still historically low, but raises doubts that GDP Growth is above the Fed's estimate of 1.8-2.0% trend.  The Rate should decline q/q if GDP Growth is above trend.  To be sure, this trend estimate may be too low, if last year's stronger Productivity Growth pace continues.

Even with a low Unemployment Rate, wage inflation remains subdued.  Average Hourly Earnings rose 0.2% m/m, putting the y/y at 3.1%, versus 3.0% in December. but within last year's range.