The Bureau of Labor Statistics released a January employment report this morning that has both surprises and disappointments. On the positive side, job creation was stronger than expected, showing a net gain of 227,000 jobs. Even better, the private sector added 237,000 jobs, while the government sector posted a 10,000 decrease for the month. This report included regular annual revisions, and on balance, the revisions were small. That revised data now show the U.S. economy added an average of 195,000 jobs a month over the past year. Overall, a pretty impressive performance.
On the negative side, however, the long-awaited acceleration in hourly earnings seemed to slow a bit last month. Average hourly earnings rose at a 2.5 percent rate over the past year, the same as in December, but December was originally reported as a 2.9 percent increase. That disappointment does have a silver lining. While better wage growth is likely to support future spending and economic activity, the slower pace of wage growth means less concern over cost-push price increases.
The other somewhat negative news was an uptick in the unemployment rate, to 4.8 percent from 4.7 percent in the prior month. That increase, however, was largely due to more people entering the labor force. The labor force grew by 76,000 in January, pushing the participation rate to 62.9 percent, the highest since September 2016 – a positive sign.
The labor market remains the key to the economic outlook. Jobs and income growth support consumer spending, but a tightening labor market and accelerating wages are a concern for the Federal Reserve. The U.S. economy appears to be walking a tightrope at the moment, growing at a decent pace but not overheating.