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Economy added a robust 225,000 jobs in January, defying worker shortages

USA TODAY logo USA TODAY 2/7/2020 Paul Davidson, USA TODAY
a sign on the side of a building: Aa now hiring sign hangs nearby as a builder works on a commercial property under construction in Peabody, Mass. © Elise Amendola, AP Aa now hiring sign hangs nearby as a builder works on a commercial property under construction in Peabody, Mass.

Hiring picked up in January as employers added 225,000 jobs and the labor market continued to defy worker shortages and a slowing economy.

The unemployment rate rose to 3.6% from a 50-year low of 3.5%, but that's largely because more Americans joined the labor force, which includes those working and looking for jobs, the Labor Department said Friday.

Some economists expected mild weather to boost payroll gains in industries such as construction and leisure and hospitality. Goldman Sachs reckoned that dry weather in the Northeast and Ohio would lift job gains by as much as 30,000. Nomura anticipated a bump from unseasonably warm temperatures. Construction led the job gains with a healthy 44,000, the most in a year.

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And with low unemployment spawning more worker shortages, Goldman believed that employers likely laid off fewer employees at the end of 2019, boosting payrolls in January.

Meanwhile, government hiring for the 2020 Census, which is expected to ramp up later this yea, likely contributed to the 12,000 federal government jobs added last month, says Gus Faucher, chief economist of PNC Financial Services Group,

In a sweeping annual revision, the number of jobs gained from April 2018 to March 2019 was lowered by a whopping 514,000, slightly more than a preliminary estimate last summer. But payroll increases from April to December were revised up by 92,000, leaving total employment in December 422,000 below prior estimates.

The bigger picture is that job growth is forecast to throttle back this year as the economy slows and low unemployment makes it even harder for businesses to find workers. Although U.S. trade deals with China, as well as Canada and Mexico, have eased business uncertainty, other trade fights with China and Europe still loom, adding to mounting concerns about the economic effects of the coronavirus and persistently sluggish global growth.

After job gains averaged about 175,000 jobs a month in 2019, many economists expect monthly increases of just over 100,000 this year.

Wage growth ticks up 

Average hourly earnings increased 7 cents to $28.44, bumping up the annual gain from 2.9% to 3.1.

Pay increases have moderated after reaching 3.5% in late 2018 but have hovered around 3%, surprising some analysts who expected sharper gains as the unemployment rate has fallen.

"Despite the historically low unemployment rate, wage growth is still not accelerating," says Paul Ashworth, chief U.S. economist of Capital Economics.

The measured increases have helped hold down inflation, allowing the Federal Reserve to cut interest rates three times last year and keep rates low in 2020.

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Industries that are hiring

Besides the strong gains in construction, health care and leisure and hospitality each added 36,000 jobs; transportation and warehousing, 28,000; and professional and business services, 21,000.

Manufacturing cut 12,000 jobs in a sign the industry continues to struggle amid sluggish growth overseas and U.S. trade conflicts. A report this week showed manufacturing activity expanding last month for the first time since July, raising hopes of a turnaround after the Trump administration reached the trade agreements. But the lingering trade battles. as well as the coronavirus and a halt to production of Boeing 737 MAX airliner after two fatal crashes, are could leave a cloud of uncertainty over the industry in the months ahead.

Labor force participation at 7-year high

The share of Americans working or looking for jobs rose from 63.2% to 63.4%, the highest level since June 2013. The favorable labor market has provided workers more leverage and bumped up their pay, drawing more Americans on the sidelines -- including those with fewer skills and disabled people -- into the job market. That's a positive for the economy but the surplus labor supply could be keeping wages from climbing more rapidly.

What it means

This was a surprisingly strong jobs report, but the totals were likely inflated by mild weather, says economist Ian Shepherdson of Pantheon Macroeconomics. That means there likely will be a downshift in payroll gains in February, he says.

The rise in labor force participation probably held down wage gains and should keep the Fed from raising interest to combat inflation, Bank of America says. At the same time, the robust job numbers will likely discourage the central bank from cutting rates to spur growth. In other words, the Fed is inclined to stand pat in the months ahead.

This article originally appeared on USA TODAY: Economy added a robust 225,000 jobs in January, defying worker shortages

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