Editor's note: This complimentary research note was written by Macro Analyst Christian Drake and originally published on February 07, 2014 at 13:36 in Macro. For more information on how you can subscribe to Hedgeye click here.
This morning’s Employment data for January confirmed the slowdown observed in December and, on balance, was a disappointment versus Nonfarm Payrolls consensus at +180,000.
For the record, we highlighted (in detail) the emergent deceleration in the domestic, fundamental macro data in our "Flash Call" on Wednesday. We would direct you to that for a fuller discussion of the data and how to be positioned for (on the margin) #InflationAccelerating and#GrowthDecelerating. For a link to the presentation and replay ping firstname.lastname@example.org.
BULL/BEAR: The January employment data was soft on balance but again offered a bevy of talking points for the bull & bear contingents.
On the BEAR side, the Establishment Survey was weaker for a second month with Non-farm and Private payrolls increasing +113K (vs. +180K exp.) and +142K (vs. +185K exp), respectively.
Further, there was no meaningful, positive revision to the December figures which were revised +1K to +75K.
With the NFP numbers now beginning to decelerate on a Trend (3M/6M) basis the implications for prospective policy adjustments become more substantive.
On the BULL side, the incremental improvement in the unemployment rate to 6.6% was a function of positive dynamics, specifically higher employment and higher labor force participation.
The Household Survey showed a strong gain in employment with an estimated +638K jobs added in January with Total Unemployed dropping -115K sequentially.
The labor force participation rate increased to 63% from 62.8% as the net change in the labor force (+523K), driven by the positive change in employment, increased at a premium to the +170K increase in the Civilian Population.
Overall, despite the ongoing decline in the U-3 rate, the preponderance of labor market metrics remains largely middling – expect the Fed to highlight that reality and increase discussion around an inflation floor or similar as we move toward breaching the unemployment ‘target’ on the downside.
SEASONALITY: The marked deceleration in the reported, seasonally adjusted payroll numbers is, perhaps, even more remarkable given that seasonality should be serving to buttress the numbers as we build towards the positive peak in seasonality in February.
INDUSTRY EMPLOYMENT: Construction and Manufacturing were the notables, reversing last month’s weakness, gaining +48K and +21K, respectively
The laggards were Retail (-13K) and Education and Health Services (-6K). In fact, Healthcare saw a net decline in employment MoM for the first time since July 2003!
GOVERNMENT EMPLOYMENT: Federal Gov’t Employment Declined -12K MoM (-4K ex-Postal Service). State & local Government lost -17K jobs in December, but on a year-over-year basis growth remains positive at +0.17%.
HOURS & WAGES: Hours and wages, which shouldn’t show material distortion from weather, were largely flat sequentially. Weekly hours worked held at 34.4 while hourly earnings grew +1.9% YoY – note that the longer-term trend in wage growth is ~ +3% and with PCE growth running at +3.6% as of the latest December reading, wage growth has some heavier lifting to do to maintain the current pace of household spending.
WEATHER: Unlike last month, employees out of work due to bad weather wasn’t an upside outlier in January. BLS reported that 262K individuals missed work due to inclement weather in January, which compares to the longer-term January average of ~250K.
CES Benchmark Revision: The BLS revised the total nonfarm employment level for March 2013 upward by 369K with the total level of NFP employment for year-end 2013 revised from 136.9M to 137.4M, or a positive revision of ~500K.
Employment By Age: Employment growth by age accelerating sequentially for all age cohorts except 20-24 year olds. Despite the sequential improvement from -0.9% YoY to -0.5%, 45-54 Yr. olds remain the lone age demographic still mired in negative employment growth. With the exception of a few months in mid-2012, 45-54 years olds have yet to see positive job growth in any post-recession month according to BLS data.
Christian B. Drake