January Jobs Report: Strong hiring leads to greater wage growth

Feb 2, 2018, 11:50 AM by Nikhil Mohan
  • Headline: U.S. employment rose by 200,000 jobs in January, which was above the consensus expectation of 180,000. November’s downward data revision and December’s upward revision resulted in net gains that were 24,000 jobs lower than previously reported. January’s number brought the average over the past three months to 192,000 jobs. Both the unemployment rate and the labor force participation rate were unchanged for the fourth consecutive month at 4.1% and 62.7%, respectively.
  • Executive Summary: The economy started off 2018 on a strong note, with employment gains surprising on the upside. Although job growth has slowed in the past two years, it remains solid. Moreover, a tighter labor market may finally be translating into greater pay increases for workers—wages saw their greatest increase since 2009 in January. Hiring was broad-based and robust in the construction, manufacturing, food services and health care sectors, with employment continuing to trend upward.
  • Wage Inflation: Annual wage growth ticked up the most since June 2009, as average hourly earnings rose 75 cents over the year, or 2.9%, to $26.74 per hour in January. Wages were up by 9 cents for the month. January’s wage gain may at last be a sign that strong hiring and an ever-tightening labor market is finally translating into greater pay increases. Moreover, this could be yet another reason for the Fed to raise interest rates in March. While it may be too early to call this a trend, we expect wage growth will accelerate further if the unemployment rate continues to drop, thus forcing companies to pay higher wages to attract workers from a shrinking labor pool.
  • Labor Force Participation: The labor force participation rate stayed at 62.7% in January. Without an improvement in the participation rate, it will be difficult to increase the pace of hiring. The rate has remained between 62.4% and 63.1% since August 2013.
  • Job Growth Outlook: We expect the rate of gains to moderate in coming months, as employers find it difficult to fill skilled positions from the current workforce. A rise in participation would help, but growth of the labor force will be limited due to the aging population. The recently enacted $1.5 trillion tax-cut package, which includes a sharp reduction in the corporate income tax rate to 21% from 35%, is expected to provide a boost to the job market. However, gains will likely be modest given that the timing of the stimulus coincides with the economy operating almost at full capacity.
  • CRE Sector Employment:
    • Construction: Construction added a solid 36,000 jobs in January, with much of the increase among specialty trade contractors (+26,000 jobs). In the residential construction sector, 5,000 jobs were added. Overall, construction employment has increased by 226,000 over the past year.
    • Industrial: Manufacturing payrolls rose by 15,000, largely in the durable goods industries (+18,000). Manufacturing has added 186,000 jobs over the past year.
    • Retail: Retail employment increased by 15,400 in January, with clothing & accessories stores accounting for much of this increase (+15,100). General merchandise stores payrolls, which include departmental stores, declined by 2,300 in January, while building material & garden supply stores added 3,400.
    • Office: Professional & business services added 23,000 jobs in January, with much of this increase driven by administrative and waste services (+14,600). Computer system design services (+4,500) and management & technical consulting services (+4,600) were the other major drivers of office-related employment.


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