Job growth slowed in the opening month of 2016, though the mixed report offered little insight into the Fed’s potential action in March. Struggling equity markets are a greater indicator that the Fed will not likely raise rates, at least until the June meeting. However, several important data releases are scheduled prior to the next meeting of the Federal Open Market Committee (FOMC), including a February jobs report from the Bureau of Labor Statistics. Furthermore, seasonal adjustments for the January release are notoriously difficult to apply, which could result in considerable revisions and provide more guidance on potential Fed policies.
Although the headline figure came in below expectations, the January jobs report was more upbeat under the surface. Employers expanded payrolls by 151,000 spots, below expectations of 190,000 new jobs. Gains were highest in the retail trade, food services and drinking places, healthcare and manufacturing. Unemployment, which comes from a separate survey, dipped below 5 percent for the first time since early 2008. The labor force expanded by 500,000 workers as higher-paying jobs lured more people into the workforce.
Falling unemployment and an increasing labor force were among a bevy of positive signs from the establishment and household surveys. Most importantly, average hours increased and wages climbed 2.5 percent year-over-year and 0.5 percent for the month, representing the largest gain in more than a year. Collectively, low unemployment, rising participation and climbing wages are suggestive of a more competitive labor market.
Several sectors highlight the challenges with seasonal adjustments after the holiday season and lend credence to dismissing the low headline figure in favor of more clarity with the next release. According to the BLS, retailers added nearly 60,000 jobs last month, which would be highly irregular after the holiday shopping season. Cuts in the private education sector, meanwhile, pared 39,000 spots from payrolls, also an unusually large figure.
Overall, the January jobs report provides little indication that the economy will reverse course this year. The odds of a recession remain below 20 percent, though that figure has crept higher in recent weeks. Interest rates are likely to remain low for the next several months regardless of Fed action as the flight of capital from equities keeps 10-year Treasury rates low.