Jobs-Day Guide: January Surprise, U.S. Wages, Participation Rate

Here’s what to look for when the Labor Department releases the U.S. payrolls report for December at 8:30 a.m. on Friday in Washington.

• Job creation: While economists project about a 230,000 increase for last month, it wouldn’t be unprecedented if it’s less. There’s something about January: In nine of the past 10 years, the government’s initial print for that month was lower than the median forecast in a Bloomberg survey, by an average of 57,000. The biggest miss was in 2011, when the median called for a 146,000 increase and the Bureau of Labor Statistics reported 36,000 jobs were added.

“Unwarranted optimism abounds, again,” write Bloomberg economists Carl Riccadonna and Josh Wright. “January is a difficult month for forecasting employment, based on the track record of payroll forecasters in recent years.”

January is the month with the largest seasonal adjustment for the year as the government tries to smooth over the mass firings of temporary staff hired during the holidays. Larger-than-normal employment in the last few months of 2014 may mean bigger-than-normal dismissals followed, suggesting January payrolls could disappoint yet again, said Riccadonna and Wright.

Even if the 230,000 forecast proves correct, it would be the smallest advance since August. Still, that would do little to alter the labor market landscape. After all, employers last year added almost 3 million workers, the most since 1999. What’s more, Americans’ attitudes about the labor market have improved, indicating more employment opportunities. Bloomberg’s comfort index shows sentiment among full-time workers is near the highest level since mid-2007, before the recession.

“The gears are really starting to catch for the domestic economy,” said Scott Brown, chief economist at Raymond James & Associates Inc. in St. Petersburg, Florida. “We’ve obviously got a lot of worries about the rest of the world, and that’s going to batter the markets on a day-to-day basis, but here we’re seeing the better job growth leading to more spending. An increase in spending leads to more job growth.”

The unemployment rate, derived from a survey of households rather than businesses, is projected to hold at 5.6 percent, the lowest level since June 2008. That’s 0.1 percentage point from the 5.2 percent to 5.5 percent range Federal Reserve policy makers associate with full employment. Note: Simple rounding of the rate in December (5.565 percent) kept it just above the Fed’s range.

• Wages: While employers have pushed ahead with new hires, they’ve been less keen to boost pay. Average hourly earnings are projected to climb 1.9 percent in January from a year earlier. That’s close to the 2 percent average since the expansion began in mid-2009.

“The most interesting part of the employment data could be average hourly earnings,” said Ward McCarthy, chief financial economist at Jefferies LLC in New York. “It’s important because one of the shoes that we’re waiting for to drop is faster wage growth. So far, we really have had very scant evidence of that happening.”

Hourly earnings fell 0.2 percent in December from the previous month, the biggest drop since comparable records began in 2006, the Labor Department reported last month. They’re projected to rebound 0.3 percent in January.

Wages, with their implications for inflation, will be especially important as the Fed considers the timing of raising interest rates.

“With the unemployment rate continuing to decline rapidly, markets are expected to focus on wages,” Gennadiy Goldberg, a U.S. strategist at TD Securities USA LLC in New York, wrote in a Feb. 2 note to clients. “Wages are likely to continue keeping markets on their toes, with investors looking to wage data to gauge the timing for rate hikes.”

• Payroll revisions: With every January report, the Bureau of Labor Statistics issues payroll revisions covering the previous five years - something only an eco-geek could love. The update incorporates data based on state unemployment insurance tax records. In September, the BLS’ preliminary estimate indicated a 7,000 upward adjustment to payrolls for the year ended March 2014. That reflects more jobs in information industries, construction and manufacturing and fewer in professional and business services and education and health care.

The Labor Department will also incorporate new Census Bureau population estimates into the household survey it uses to calculate the jobless rate, which may affect the estimated size of the labor force.

“It’s possible there’s a bit more noise in the household survey as a result of the population adjustment,” said Michelle Meyer, senior U.S. economist at Bank of America Corp. in New York.

The adjustments could change perceptions of key measures such as the participation rate. The number of Americans employed or looking for a job as a share of the working-age population was 62.7 percent in December, matching the lowest level since 1978. The revisions could help solve the mystery of whether people have, or have not, disappeared from the workforce.

Before it's here, it's on the Bloomberg Terminal.
LEARN MORE