American businesses spoke with their bottom line in January hiring the most new employees since February, erasing concerns that the 35 day partial closure of the Federal government might have a serious economic impact.
Non-farm payrolls surged 304,000, reported the US Labor Department on Friday, far outstripping the 165,000 forecast. The December total was adjusted down to 222,000 losing 90,000. But even with that revision job gains in the final quarter average 241,000 a month.
The unemployment rate rose 0.1% to 4.0% partially because some of the furloughed government workers were counted as unemployed and partially because more people began looking for work.
Manufacturing employment rose 13,000 capping the best two years for the factory sector since 1995. Average annual hourly earnings were steady at 3.2%.
Manufacturing Payrolls
Reuters
In his press conference on Wednesday after the FOMC meeting Fed Chairman Powell spoke about "cross-currents" that could harm the US economic picture. One was the 35 day partial shutdown of the federal government, the longest stay on record. Others, in no particular order, were stresses from financial markets, the US-China trade dispute and the pending exit of Britain from the Europe Union. Of all, the government closure was the closest to home and the most immediate.
The central bank began downgrading its economic and rate forecasts at the December meeting. It reduced the GDP projection for 2019 to 2.3% from 2.5% and the Fed Funds rate to 2.9% from 3.1%. The change in the rate forecast reduced the expected number of 0.25% increases this year by one, leaving two.
It was in explanation of the Fed’s change in estimates that Mr. Powell offered his reasons on Wednesday.
The January jobs numbers suggest that the economic impact of the shutdown and the other economic and political problems was greatly overstated.
Business confidence has been troubled by the unsettled trade wrangle between the globe’s two largest economics which was started by President Trump in January. From a high of 60.8 in August, the best score for the Institute for Supply Management’s purchasing managers’ index in 14 years, the index had fallen to 54.3 by December. This excited speculation that businesses were pulling back on investment and production awaiting the outcome of the shutdown and the trade dispute.
ISM Manufacturing PMI
Reuters
Businesses and markets, primarily equities were also pummeled last year by worry that the Fed’s normalization program was raising rates too quickly. It has long been an economic adage that recessions are most often caused by Fed rate tightening cycles.
It seems that both concerns were overwrought. The ISM manufacturing index reversed in January climbing to 56.6, a very respectable expansionary level and businesses have gone on a hiring spree in the final quarter.
Staff increases are normally the last measure a business takes when instituting a growth plan. Employees are expensive, hard to find and wrenching to let go.
For business managers to hire at the rate of the past three months their view of the future must be considerably brighter than the worried doves at the Fed.
Reference: FXStreet
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