Friday’s Labor Department report showed that the U.S. job market remains resilient even as the overall economy is struggling in areas such as manufacturing and facing severe weakness overseas. The report serves as a key piece of evidence for the Federal Reserve, which is weighing whether to raise interest rates again in the face of global risks after lifting rates from record lows in December.
The January hiring gain, though modest, followed robust job growth of 280,000 in November and 262,000 in December. Last month, companies shed education, transportation and temporary workers but stepped up hiring in manufacturing, retail and food services.
Aside from the slowdown in overall hiring, economists were encouraged by most other aspects of the report.
“Positive job growth, the drop in the unemployment rate to 4.9 percent and the uptick in wages show the U.S. is heading in the right direction,” said Beth Ann Bovino, U.S. chief economist at Standard & Poor’s.
Douglas Holtz-Eakin, a former director of the Congressional Budget Office, suggested looking past the tepid overall job gain to focus instead on the more reassuring figures for pay, the unemployment rate and the rising number of people who feel now is a good time to look for work.
“The January report is a solid report in disguise,” said Holtz-Eakin, president of the conservative American Action Forum.
The steady hiring gains come at an uncertain time for the U.S. economy, which some analysts say confronts a growing risk of recession within the next year or two. Global financial pressures and a volatile stock market have curtailed growth. Still, American consumers have shown resilience.
The number of people working or searching for jobs rose last month, while the number of unemployed slipped from 7.9 million to 7.8 million, which caused the unemployment rate to dip from 5.0 percent.
Average wages have jumped 2.5 percent over the past 12 months to $25.39 an hour, evidence that the past years of job growth are finally helping to generate pay raises – a crucial indicator for the Fed, which wants to see faster earnings growth.
The income growth meshes with retailers hiring a seasonally adjusted 57,700 workers.
With low gas prices leaving more money in consumers’ wallets and borrowing costs low, most economists expect Americans to spend at a decent pace this year and bolster economic growth.
Manufacturers hired a solid 29,000 workers last month, even though other indicators show factory activity weakening as the rising value of the dollar and the sluggish economies of major trade have squeezed exports of U.S. goods. The Institute for Supply Management’s manufacturing index has been below 50 for four months, signaling contraction. Orders for factory goods plunged in 2015 – the first annual drop since 2009, when the economy was just emerging from recession.
The health-care sector added a sturdy 44,000 last month.
But other sectors of the economy hit a speed bump in January. Education services – an area sheltered from the global economy – shed 38,500 workers after steady gains in prior months.
The transportation and warehousing sector downsized by 20,300, likely letting go of seasonal workers after the year-end shopping season ended. The U.S. Postal Service also parted with 6,000 jobs.
Yet the most notable decline was in temporary workers, whose ranks fell by 25,200 in January. The decrease could indicate that companies are wary that the economy can continue its 6½-year-old expansion at its previous pace. Corporate profits are declining and goods are piling up on warehouse shelves.
Those trends have elevated concern that a U.S. recession may loom in the next year or two.
However, most analysts say that while the economy may slow this year compared with 2015, an outright recession remains unlikely. Economists at Bank of America Merrill Lynch have put the odds of a recession within the next 12 months at 20 percent. While still low, that estimate is up from 15 percent last year.