Employment Makes Uninspiring Gains in January

By Justin Dean

Job growth in January remained solid but uninspiring, according to an analysis of employment metrics that includes the Federal Reserve’s labor market index and JOLTS.

Total job growth in January was 227,000, a continuation of the labor market’s consistent upward path. The economy has now added jobs for 76 straight months, with at least 100,000 in 23 of the last 25 months.

However, despite being near what many economists consider to be full employment, wage growth once again disappointed. Average hourly earnings rose 3 cents to $26.00. Although this represents a 63 cent, or 2.5%, year-over-year increase, wages have only increased 10 cents since October and hope that wage growth will exceed 3% appears to be vanishing. Wage growth is essential for driving demand for a multifamily sector currently undergoing a supply boom and a retail sector that is struggling to deal with vigorous competition from ecommerce.

The two mega sectors that make the largest contributions to office-using employment – financial activities and professional and business services — both saw substantial gains in January. Office-using employment as a whole gained 74,000 jobs (nearly a third of all jobs added) in the month following a year where 709,000 jobs were added. This news should be welcome to the office sector of commercial real estate as demand for space will continue to grow.

Alternative measures of labor market health also seem to point toward the labor market being adequate but not strong. The Federal Reserve Bank of St. Louis’s Labor Market Condition Index (LMCI), released on the business day following national jobs report, has recently been very mild in its assessment of the market. The LMCI typically drops immensely during recessions and is slightly positive during recoveries and expansions. For example, the index hit a low of -43.5 during the great recession and has averaged 3.9 during the extended recovery.

The index, which combines 19 different metrics to assess the month-to-month changes in the labor market, came in at 1.3 for the month of January after averaging -0.2 in 2016. Despite the negative average for the course of the year, the story of the LMCI was really a tale to two halves. During the first half of 2016, the index was positive only once and averaged -1.5 whereas all six months of the second half were positive and averaged 1.1. Whatever concern the index may have caused during the beginning of last year appears to have disappeared for now.

Indicators that are included in the LMCI reaffirm the “solid but not spectacular” narrative that has made up most employment reporting over the last year. Participation rates and JOLTS figures further muddy the water.

January’s report saw the participation rate increase 20 basis points to 62.9%, a healthy figure but expected: the rate has been bounded between 62.4% and 63.0% since the beginning of 2014. On one hand, these numbers represent a four decade low and lend some credence to the cries of a labor market masking deeper flaws. On the other hand, this drop in participation was bound to happen to at least some degree as the baby boomers begin to age out of the workforce. Whatever the case may be, the one thing that does seem clear is that the participation rate has hits its bottom. The only thing to watch for now is whether or not it will crack the 63% threshold and begin a rally or if the 62-63% range is the new normal.

JOLTS (Job Openings and Labor Turnover Survey) figures, which lag a month behind the traditional Bureau of Labor Statistics release, are more encouraging. The layoffs, job openings, and hire rates are all currently at or near than their pre-recessionary levels. The most encouraging figure is the layoff rate, currently at 1.1% after dropping to 1.0% in September. These are the two lowest layoff rates since the BLS began releasing the numbers in December of 2000. Only quit rates, seen as a sign of a healthy labor market because employees that quit typically feel confident in their ability to find work elsewhere, is below its peak from the early-to-mid-2000s.