Surprisingly Strong U.S. Employment Report for January

The US economy added 304,000 jobs in January a surprisingly strong month

While jobs were added, the US unemployment rate rose from 3.9% to 4% in January.

The numbers released Friday by the Department of Labor represent the largest monthly jobs increase in almost a year and continue a long running trend of 100 consecutive months of growth.

It marks the 100th month in a row the U.S. Has seen job growth. The unemployment rate rose to 4 percent, its highest level since June, which the Labor Department attributed to the impact of the shutdown. The figures blew away expectations of many economists who had predicted about 165,000 jobs would be added in the first month of the year. Many economists and investors took that as a sign that a rate increase is unlikely any time in the coming months.

Employment gains were led by the leisure and hospitality sector, which has added 410,000 jobs over the past year.

The federal government was shut down for the survey period covered by the January jobs report.

The report came two days after the Fed signaled its three-year interest rate hike campaign might be ending because of rising headwinds to the economy, including financial market volatility and slowing global growth.

How did the shutdown change the jobs report?

The U.S. Labor Department reports that non-farm payrolls surged by 304,000 last month.

The report is a key piece of data in gauging the direction of the U.S. Economy. Job growth was boosted by hiring at construction sites, retailers and business services as well as at restaurants, hotels and amusement parks.

The BLS also showed that the number of people employed part-time for economic reasons, the involuntary part-time workers, rose by roughly one-half million to 5.1 million in January. Job growth around 120,000 is more than enough to keep the unemployment rate under 4%.

But the rate of job growth in the industry is also bringing up labor costs as companies increase wages to lure workers that are increasingly hard to find.

The furloughed workers were, however, considered unemployed on "temporary layoff" in the separate household survey from which the jobless rate is calculated. The wage number is long overdue, and the jobs number continues to outpace the underlying demography. "It's still a tight labor market".

"Blockbuster job number distorted by workers forced to accept part time employment to make ends meet during government shutdown". As a result, these workers were included in the January payrolls count in the survey of employers.

Construction employment rose by 52,000 in January. Following revisions, job growth has averaged 241,000 per month over the last three months, with November revised up to 196,000 and December down to 222,000. The views expressed in this column are the author's own and do not reflect those of Berenberg Capital Markets, LLC.

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