Outside the Beltway

January Jobs Report Is Positive Despite Government Shutdown

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

Doug Mataconis · Friday, February 1, 2019 · 16 comments

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.