January Jobs Report Is Positive Despite Government Shutdown

Despite the government shutdown, employment growth in January was far above expectations.

In January and February we saw numbers that, notwithstanding the fact that most of the nation was undergoing a cold and harsh winter, were fairly strong, suggesting that 2018 could be a good year for jobs growth notwithstanding the fact that we are rather late in the recovery from the Great Recession and nearing a point in the jobs market where we’ve typically seen equilibrium in the past. The following two months, though, March and April, turned disappointing as net jobs growth missed even modest target numbers by wide margins, The job situation improved slightly in May, but even those numbers were about the same as what we saw for most of the final two years of the Obama Administration, numbers which are more consistent with a mature recovery reaching what economists refer to as “full employment.” The same was true for the report for June which was somewhat better than where expectations had been set. The July Report, though, fell short of expectations, and the August report was slightly ahead of expectations. Then, in September’s jobs report, we saw jobs growth fall below expectations while the top-line unemployment number dipped to 3.7%, level we have not seen in about 50 years. October saw another disappointing month as new job creation fell below expectations, but there was something of an uptick in November ahead of the holidays. Then, perhaps because of that holiday hiring, December brought us a report that far outpaced anticipated numbers.

All of that, though, was before the thirty-five-day government shutdown, which was expected to have a significant impact on the jobs report, with estimating we’d see roughly 172,000 new jobs added to the economy. As it turned out, though, January’s report once again busted through the estimates, but there were significant revisions for both November and December that threw some cold water on what is otherwise good news:

Total nonfarm payroll employment increased by 304,000 in January, and the unemployment rate edged up to 4.0 percent, the U.S. Bureau of Labor Statistics reported today. Job gains occurred in several industries, including leisure and hospitality, construction, health care, and transportation and warehousing.

Both the unemployment rate, at 4.0 percent, and the number of unemployed persons, at 6.5 million, edged up in January. The impact of the partial federal government shutdown contributed to the uptick in these measures. Among the unemployed, the number who reported being on temporary layoff increased by 175,000. This figure includes furloughed federal employees who were classified as unemployed on temporary layoff under the definitions used in the household survey. (See tables A-1 and A-11. For information about annual population adjustments to the household survey estimates, see the note at the end of this release and tables B and C. For more information on the classification of workers affected by the partial federal government shutdown, see the box note at the end of this news release.)

Among the major worker groups, the unemployment rate for Hispanics increased to 4.9 percent in January. The jobless rates for adult men (3.7 percent), adult women (3.6 percent), teenagers (12.9 percent), Whites (3.5 percent), Blacks (6.8 percent), and Asians (3.1 percent) showed little change over the month. (See tables A-1, A-2, and A-3.)

In January, the number of long-term unemployed (those jobless for 27 weeks or more) was little changed at 1.3 million and  accounted for 19.3 percent of the unemployed. (See table A-12.)

The labor force participation rate, at 63.2 percent, and the employment-population ratio, at 60.7 percent, changed little over the month; both measures were up by 0.5 percentage point over the year. (See table A-1.)

(…)

Total nonfarm payroll employment increased by 304,000 in January, compared with an average monthly gain of 223,000 in 2018. In January, employment grew in several industries, including leisure and hospitality, construction, health care, and transportation and warehousing. There were no discernible impacts of the partial federal government shutdown on the estimates of employment, hours, and earnings from the establishment survey. (See table B-1. For information about the annual benchmark process, see the note at the end of this release and table A. For more information on the classification of workers affected by the partial federal government shutdown, see the box note at the end of this news release.)

In January, employment in leisure and hospitality rose by 74,000. Within the industry, job gains occurred in food services and drinking places (+37,000) and in amusements, gambling, and recreation (+32,000). Over the year, leisure and hospitality has added 410,000 jobs.

Construction employment rose by 52,000 in January. Job gains occurred among specialty trade contractors, with increases in both the nonresidential (+19,000) and residential (+15,000) components. Employment also rose in heavy and civil engineering construction (+10,000) and residential building (+9,000). Construction has added 338,000 jobs over the past 12 months.

Employment in health care increased by 42,000 in January. Within the industry, job gains occurred in ambulatory health care services (+22,000) and hospitals (+19,000). Health care has added 368,000 jobs over the past year.

Over the month, employment in transportation and warehousing rose by 27,000, following little change in December. In January, job gains occurred in warehousing and storage (+15,000) and among couriers and messengers (+7,000). Over the year, employment in transportation and warehousing has increased by 219,000.

In January, retail trade employment edged up by 21,000. Job gains occurred in sporting goods, hobby, book, and music stores (+17,000), while general merchandise stores lost jobs (-12,000). Employment in retail trade has shown little net change over the past 12 months (+26,000).

Mining employment increased by 7,000 in January. The industry has added 64,000 jobs over the year, almost entirely in support activities for mining.

Employment in professional and business services continued to trend up over the month (+30,000) and has increased by 546,000 in the past 12 months.

Employment in manufacturing continued to trend up in January (+13,000). Over-the-month job gains occurred in durable goods (+20,000), while employment in nondurable goods changed little (-7,000). Manufacturing employment has increased by 261,000
over the year, with more than four-fifths of the gain in durable goods industries.

Employment in federal government was essentially unchanged in January (+1,000). Federal employees on furlough during the partial government shutdown were counted as employed in the establishment survey because they worked or received pay (or will receive pay) for the pay period that included the 12th of the month.

Employment showed little change over the month in other major industries, including wholesale trade, information, and financial activities.

In addition to the numbers above, the Bureau of Labor Statistics reported that total nonfarm payroll employment for November was revised upward .from +176,000 to +197,000 and the number for December was revised downward from +312,000 to +222,000. These revisions made for a net downward revision of -70,000 for those two months. Combined with this month’s jobs numbers, this puts the average jobs growth for the past three months at +241,000 net jobs created per month, a slight decrease from where the three-month average stood last month. Based on these revisions for November and December, we saw a total of 2,024,000 new jobs created in 2018 as a whole for an average of +168,667 net new jobs per month, which is a slight decrease from where we stood last month. Combined with the final jobs numbers for 2017, this means we’ve seen a total of 3,479,000 new jobs created since January 1, 2017, a period that has largely coincided with Donald Trump’s tenure as President, for a monthly average over that period of +148,520 new jobs created, which is a slight decrease from where this average stood as of last month and roughly similar to what we saw during the final four years of the Obama Administration.

During his campaign for President, Donald Trump promised to create 25,000,000 jobs during his Presidency. That would require the creation of 3,125,000 per year over an eight-year term for an average of 261,000 new jobs per month. Over a four-year term that would require 6,250,000 per year, for an average of 521,000 new jobs per month. Based on the average growth rate we have seen since the start of 2017 it would take nearly twelve and one-half years to reach that goal. Based on the average for 2018 to date, it would take roughly ten years to reach the goal. Based on the average jobs growth for the year to date, it would also take roughly twelve years to reach that goal. Based on the average for the past three months, it would also take roughly ten years to reach Trump’s goal. All of this, of course, assumes that we don’t have even a mild recession during that period. Needless to say, it is unlikely that we’re going to see sustained average jobs growth over the next three to seven years that would put us close to the President’s goal absent a significant change in the nature of the jobs market.

Looking deeper into the numbers, the average workweek across the board was unchanged at 34.5 hours while average hourly earnings rose 3 cents to $27.56. Over the year, average hourly earnings have risen by 85 cents or an annualized rate of 3.2%. This is a stronger wage growth number than we’ve seen in recent months, and it’s consistent with the increase we saw last month but it’s worth noting that it comes off several months when wage growth was essentially stagnant, so this may just end up being a statistical blip. As I’ve said before, the relatively slow growth we’ve seen in wage growth could be a sign we’re hitting an equilibrium point in the jobs market that will preclude big jumps in either hiring or hourly earnings on a sustained basis. Also on the positive side is the fact that labor force participation rose while long-term unemployment dropped a bit is a positive sign that more people are entering the jobs market on the belief that there’s more opportunity out there.

In its report, The New York Times emphasizes the fact that the five-week government shutdown does not appear to have had an impact on the jobs market as a whole:

The government shutdown may have hurt the economy, but there’s no sign it slowed down the United States’ record-setting job market.

January’s growth means that American employers have added jobs for 100 consecutive months, extending a record run. The unemployment rate is near a multidecade low, and wages — long a weak point — are rising.

The shutdown idled hundreds of thousands of federal workers for much of January, and left hundreds of thousands of others working without pay. Ripple effects hit everyone from unpaid government contractors to Washington lunch spots that lost business.

But the disruption doesn’t appear to have dissuaded private-sector employers from continuing their strong pace of hiring. And furloughed federal workers counted as employed for the purposes of government statistics.

Even before the lapse in funding, economists were growing nervous that the United States’ decade-long expansion could be nearing its end. The shutdown not only added to those fears, it also shuttered the Commerce Department, which produces a lot of the data forecasters rely on. (The Labor Department, which produces the jobs report, stayed open.)

But if companies are getting nervous, that isn’t yet leading them to hold off on hiring.

“This jobs report is showing no evidence of an economy showing, certainly not falling into recession,” said Michelle Meyer, chief United States economist for Bank of America Merrill Lynch. “It’s still a tight labor market. Employers are still actively looking for jobs, and with wages ticking up, it looks like workers are getting some more bargaining power.”

The month long shutdown put an $11 billion dent in the economy, according to the Congressional Budget Office. Some private estimates put the costs even higher.

That damage was hard to see clearly in Friday’s job figures, however. Federal workers will all receive back pay for the days the government was closed, whether or not they were required to work. As a result, the official figures counted all of them as having been on government payrolls in January, even if they weren’t actually on the job.

Government contractors generally won’t receive back pay, so if they didn’t work, they weren’t counted. Ditto for other private-sector workers who were laid off (or weren’t hired) because of the shutdown. But most economists expected those effects to be small in the context of an economy that employs more than 150 million people.

As a preliminary matter, it’s worth noting that the federal employees directly impacted by the shutdown did not have an immediate impact on the jobs numbers. This was due primarily to the fact that, thanks to legislation passed during the shutdown, all of those workers are receiving back pay for the entire shutdown period as if they had been regularly employed. Therefore, they were not counted among the unemployed. Additionally, it doesn’t appear that the shutdown itself had much of an impact on other sectors of the economy, although the statistics do not specifically break down numbers for industries that are heavily dependent on the Federal Government as part of their business operations.

While this is clearly a positive number, it’s worth noting that these numbers are similar to those we saw in December, with the initial estimate of 312,000 new jobs revised downward by nearly 100,000 jobs to +222,000. Given that, we’ll need to wait until next month to see if these numbers sustain themselves actually stand up. That being said, there’s no denying that these are positive numbers that should push to the side for the moment concerns that we could be headed for a recession any time in the near future. More likely than not, we’ll see economic growth slow down a bit from the aggressive pace it was setting in the final months of 2018, but that’s to be expected. All in all, though, all signs seem to be pointing toward a steady, growing economy and jobs market for the time being.

FILED UNDER: Economics and Business, US Politics,
Doug Mataconis
About Doug Mataconis
Doug holds a B.A. in Political Science from Rutgers University and J.D. from George Mason University School of Law. He joined the staff of OTB in May 2010. Before joining OTB, he wrote at Below The BeltwayThe Liberty Papers, and United Liberty Follow Doug on Twitter | Facebook

Comments

  1. Dave Schuler says:

    Well, obviously robust job growth is better than the opposite and the breadth of the sectors in which jobs are being created is encouraging. I don’t know how high the LFPR will need to be before a tightening job market is reflected in higher wages. That’s the missing link right now.

  2. Stormy Dragon says:

    If you actually read the report, the furloughed government workers are counted as still employed in the establishment data (the jobs number) but unemployed in the household data (unemployment rate), which is why the jobs number still went up, but the unemployment number also went up.

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  3. MarkedMan says:

    Wage growth for January was 1.6% against an inflation rate of 2%, so wages declined in January by 0.4%.

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  4. @Dave Schuler:

    The other question this report raises is just how reliable these monthly numbers are. The downward revision for December turned a really good number above 300,000 into a fair-to-middling one just about 210,000.

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  5. MarkedMan says:

    I’m a big fan of capitalism (or at least, regulated capitalism), but we have a tendency to believe it is driven by inescapable market forces and pure data. In fact, the force of fads has no small part in business decisions. And a fad that has almost risen to the level of divine wisdom is the primacy of keeping wages down. Company after company talks about how they can’t get enough workers, but still they refuse to raise wages. At some point the data shows that the loss of business more than offsets the incremental wage cost, but that is ignored. The real motivator is the overwhelming weight of the stock analysts and the McKinsey consultants. They watch wage growth and a company is downgraded if wages go up, and the McKinsey consultants start questioning whether the C Suite occupants are “up to the task”. A CEO can halve their real income in a year if that kind of talk keeps up. Absent a strong union, they are not going to risk raising wages for anything as mundane as growth in a mature market.

  6. Kathy says:

    I’ve two thoughts:

    1) Trump’s biggest “achievement” has been not to mess up the Obama economy, but not for lack of trying.

    2) If more people were allowed to immigrate to the US, wouldn’t that create more jobs?

    Corollary: how many jobs held off the books by illegal immigrants count as jobs?

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  7. Bob@Youngstown says:

    @Kathy: Some what OT, but related to your second point:
    Between 1905 and 1914 an average of 1 million persons per year legally immigrated to the US. While there were many other ports of entry, in 1907 Ellis Island processed 1,004,700, and the all time daily high at Ellis was 11,700. (My grandmother among them).

    They found jobs (maybe menial) raised families who bettered themselves by hard work and training and got better jobs and sent their kids to school who got better jobs etc. All along the way contributing to society and the national economy. All because the US put the resources in place to encourage legal immigration.

    Now, and over the past 30 years particularly, laws and resources to encourage legal immigration and naturalization have been strangled. The predictable consequence has been an increase in illegal immigration.

    I would agree that our immigration laws are “broken”, and they are “broken” because Congresses and Presidents created a patchwork of barriers to legal immigration. See:

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  8. Dave Schuler says:

    @Doug Mataconis:

    I stopped following the BLS’s Labor Situation Report quite a while ago because I found some of its components suspect. In particular the birth/death ratio, a fudge factor used to account for new businesses opening and closing, is a very significant component of the total. I’m suspicious of any fudge factor that’s larger than the data you’re purportedly measuring.

    That doesn’t necessarily mean the numbers are tremendously wrong. It means that we should take the numbers that are being reported with a grain of salt.

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  9. Daryl and his brother Darryl says:

    Let’s be perfectly clear…good job numbers if they hold up.
    Still, Obama saw more jobs created in his last two years than Dennison has in his first two years.
    Job growth is slower so far in the Individual-1 era.

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  10. Kathy says:

    @Bob@Youngstown:

    My thinking is that jobs are created due to population increases. if the population were stable, ro decreasing, then no new jobs would be necessary. And even if more jobs were created, they’d go unfilled.

    It’s not that simple, but that’s the gist. So if the intention is to create X number of jobs, you’d need mor population. If the increase through births isn’t enough, then import more population from elsewhere, yes?

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  11. Guarneri says:

    The lesson is clear: we need more government shutdowns.

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  12. Just nutha ignint cracker says:

    For what it’s worth, I’m getting jaded about including the item about promising 25 million jobs created during a Trump administration. Every sane person–including job creation master of the universe Guarneri–knows that was a number Trump pulled out of his ass and has the same meaning as “beautiful gourmet kitchen” does in an ad for a 2 bdrm walk up. Just sayin’…

  13. gVOR08 says:

    WAPO has a nice piece on how 4% Unemploment Isn’t What It Used To Be. Mostly, post Great Recession, there are still a lot of people who may reenter the labor force.

  14. Kathy says:

    @MarkedMan:

    And a fad that has almost risen to the level of divine wisdom is the primacy of keeping wages down.

    This has bothered me for some time.

    The infamous Black Death that swept Europe and killed about 1/3 of the continent’s population, also produced a labor shortage. Wages rose and conditions improved for many of those who survived (and this led to further developments, but that’s another matter).

    The Great recession had the reverse effect, creating a surplus of labor. This explains the stagnant wages through the recession and recovery. But the stagnation goes back further.

    I remember a time when employees were seen as an investment. Remember the phrase “human capital”? Now labor, at all levels, is merely a cost, “human liabilities” as it were.

    It’s all over, too. In the aviation blogs I tend to read, there’s much talk of 1) a shortage of pilots for commercial airlines at all levels, and 2) the dismal prospects for new pilots hired by most commercial airlines (such as there not being a path from a regional carrier to the mainline carrier).

    This is all tied to what i was talking about rich people rarely thinking they’ve made enough money and don’t need more.

  15. gVOR08 says:

    @MarkedMan: In what seems like long ago in a galaxy far away, you’d see references to management feeling a responsibility to all stake holders, share holders certainly, but also labor, even customers and retirees. I recently saw this claimed for the founders of Hewlett Packard. Now a CEO seems to feel no responsibility to anything but his own stock options. Not something I claim any knowledge of, but it seems like something has gone very wrong with corporate governance in this country.

  16. grumpy realist says:

    @Kathy: Business owners are terribly indignant if you tell them that the laws of supply and demand apply to labour, as well. Too many of them seem to think that they have a God-given right to A level work peons at D- quality salaries.

    (If you can’t find sufficient people for your jobs at present salaries, Raise. The. Effin’. Salary. Duh. )