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Friday morning, before the opening bell, the U.S. Labor Department reported that the economy added 304,000 jobs during the month of January, crushing expectations for a 165,000 gain. However, working to offset the huge beat, December's reading was revised down to indicate a gain of 222,000 jobs (down from 312,000 reported previously, though November's reading was revised up to 196,000 (from a gain of 176,000 previously reported). With these revisions, job gains have now averaged 241,000 over the last three months.
Despite the huge jobs number, the unemployment rate increased 0.1 percentage points to 4.0%, and while this may appear counterintuitive given the strong headline reading, it can be explained by looking at the participation rate -- which accounts for the number of Americans looking for work or currently working -- which also increased by 0.1 percentage points to 63.2%, indicating that more workers are returning to the labor force. A different, broader measure of unemployment and underemployment, known as the U-6 -- which accounts for those working part-time because they are unable to find full-time work - increased to 8.1%, from 7.6% in December.
In January, average hourly earnings for all employees on nonfarm payrolls increased by $0.3 to $27.56, following a $0.10 gain in December. Over the year, average hourly earnings (i.e., wage inflation) have increased $0.85, or 3.2%, in line with the annual rate of advance seen in December. As we noted in last month's analysis, we believe a 3.2% annual advance to represent that wage inflation is under control. Remember, this reading is important to the Fed as the central bank uses it as an indicator for future expectations of inflation, and too hot of a number gives the Fed justification to raise interest rates to combat inflation.
Jobs gains were broad across many sectors. By sector, leisure and hospitality added 74,000 jobs in December; followed by an increased of 52,000 jobs in the construction sector; 42,000 in healthcare; 30,000 in professional and business services; 27,000 in transportation and warehousing; 21,000 in retail trade; 13,000 in manufacturing 7,000 in mining; and 1,000 in federal government. There was little change, however, seen in wholesale trade, information and financial activities.
The official release is here.
All in, while we are pleased to see the strong gain in January, some of the air is taken out when factoring in the large negative revision to December's reading. That said, we still believe the job market to remain robust, however, we continue to weigh this against the readings and commentary we are seeing out of other sectors such as housing and autos. We believe that when considering the trends in these other sectors, wage inflation of 3.2% is not enough to warrant further rate hikes in the near-term and would add that we could certainly see this rate of advance come down in coming months should the participation rate continue to tick up and companies are in less competition to find workers.
Action Alerts PLUS, which Cramer co-manages as a charitable trust, has no positions in the stocks mentioned.