Strong January employment numbers, upwardly revised November and December numbers, and improved wage growth were the noteworthy trends in the Bureau of Labor Statistics employment report this month. The U.S. added 257,000 jobs in January, while the unemployment rate edged up to 5.7% from 5.6% as more people entered the labor force in search of work. In addition, November’s job gain was revised up to 423,000 from 353,000 and December numbers were adjusted from 252,000 to 329,000. Factoring in the revised November and December employment numbers, monthly job gains averaged 336,000 over the past three months.
Job gains this month occurred in retail trade, construction, healthcare, financial activities and manufacturing. Retail trade employment rose by 46,000 in January, with three industries accounting for half of the jobs added – sporting goods, hobby, book and music stores (+9,000); motor vehicle and parts dealers (+8,000); and nonstore retailers (+6,000). Construction continues to perform well, adding 39,000 jobs in January after adding 48,000 in December. Employment increased in both residential and nonresidential building, adding 13,000 and 7,000 jobs respectively.
Healthcare added 38,000 jobs last month, including 13,000 in offices of physicians, 10,000 added to hospitals and 7,000 within nursing and residential care facilities. Healthcare added an average of 26,000 jobs per month in 2014. Also, employment in financial activities rose by 26,000 in January, while the sector added 159,000 jobs over the past 12 months. Manufacturing employment increased by 22,000 over the month, adding 228,000 jobs in the past year.
What’s In Store for 2015
The job market outlook for 2015 is positive as the U.S. added an average of 336,000 jobs in the past three months, the fastest rate since 1997 when the dot-com boom was taking hold. The economy has now created at least 200,000 jobs each month for 12 consecutive months, an accomplishment last achieved in 1994-1995. Most industries are now hiring new employees, signaling the recovery has broadened and spreading throughout the economy, another sign the country is well-positioned for an impressive 2015.
The amount of time people worked each week also held steady at a post-recession high of 34.6 hours, which reflects a strengthening economy and helps boost paychecks for hourly employees. This, combined with wage improvements for most workers and the newly-employed, suggests the economy is ready for its strongest year of growth since 2005 – the last time the U.S. grew by more than 3%. Several market dynamics will be closely watched as we move through 2015, including wages, oil/gas prices and consumer spending.
Improving Wages, Hourly and Minimum Wage
Another good sign, hourly wages jumped 0.5% in January to $24.75 after declining in December – the largest gain in six years. Wages increased a healthy 2.2% year-over-year in January, nearly three times the rate of inflation and improved largely from stagnant improvements throughout most of 2014.
Meanwhile, more than 3 million workers got a raise from minimum wage increases in some 20 states. The minimum wage increases ranged from a $1.25 bump in South Dakota to a 12-cent increase in Florida, with half of the increases due to new pay floors established last year by lawmakers and voters, while other annual increases are tied to inflation.
Despite the increases, many economists don’t anticipate a big impact on average hourly earnings figures, more of a rounding up of wage gains that will not likely change the trend substantially.
Oil: Boom or Bust
Falling oil prices may have a number of effects on the economy and the labor market. One of the biggest concerns for economists is that the large drop in oil prices during the past several months will cost many American workers their jobs in the energy sector. One of the states at risk is Texas, the second largest state economy, as several large oil companies have already announced thousands of layoffs. Despite worries, the economy added almost 200,000 oil and gas jobs in January – slightly down from December’s energy job gains.
On the other side of the coin, the huge drop in oil prices pushed gasoline below $2 a gallon in many parts of the country. Lower gas prices means more cash in Americans’ wallets which can help improve consumer spending on U.S. goods and services instead of the dollars going to Canada, Mexico and other foreign oil suppliers.
Consumer Spending & Consumer Confidence
With more jobs, more money, gas prices at a six-year low and the stock market near an all-time high, the question on many peoples’ minds is whether Americans will begin to spend more. The pace of consumer spending has been largely disappointing even despite the lower unemployment rate and 3.1 million jobs added in 2014. While the savings rate rose in December to 4.9% to hit the highest level since midsummer, both retail sales and consumer spending fell dramatically at the same time. So far, most Americans are still saving and shopping thriftily as they were several years ago.
If retail job increases and consumer confidence levels are any indication, we may be seeing a rise in consumer spending in the near future. Retailers have added 113,000 new positions over the last three months. Additionally, the latest Consumer Confidence Index reading from The Conference Board reflects improving views by consumers.
The Index rose sharply in January from 93.1 in December to 102.9 in January, its highest level since August 2007. A more positive assessment of current business and labor market conditions contributed to the overall improvement in consumers’ view of the present situation. Consumers also expressed a considerably higher degree of optimism regarding the short-term outlook for the economy and labor market, as well as their earnings.
Consumer spending will be closely watched in the coming months, as it accounts for nearly three-quarters of economic activity.