Non-Farm Payrolls Increase 304K, Unemployment Steady at 3.2%

Very strong demand for labor is the key takeaway from what is a very noisy employment report for January. Nonfarm payrolls surged 304,000 to roughly double expectations but revisions to the two prior months, at a net of minus 70,000, do trim the gain somewhat.

The standouts in the payroll data are construction and trade & transportation, both adding an unusually strong 52,000 jobs. Professional & business services extended their strong run with a 30,000 payroll increase with manufacturing posting a respectable 13,000 gain. Government payrolls, despite the shutdown, added 8,000 as furloughed workers, on the expectation that they would receive back pay, were categorized as employed in this part of the report.

Turning to the household survey, the unemployment rate rose 1 tenth to 4.0 percent yet the labor participation rate also rose 1 tenth to 63.2 percent that follows a 2 tenths gain in December. In this survey, furloughed workers were counted as unemployed on temporary layoff. Still, the rise in the participation rate does hint at new entrants, including discouraged workers, coming into the labor market.

Despite the large payroll number and rise in participation, average hourly earnings inched only 0.1 percent higher in January with the year-on-year rate unchanged at 3.2 percent. This points to still subdued wage inflation and, though a mystery that seems to defy the laws of supply and demand, will not turn up the heat on the Federal Reserve to move from its wait-and-see stance.

Adding to the noise are annual benchmark revisions in today's report which, all quirks aside, points unmistakably to unusually strong demand for labor and health for the economy.