Job and Wage Gains as Americans Rejoin the Work Force


By NELSON D. SCHWARTZFEB. 6, 2015


The economy barreled through the last three months with strong momentum, the Labor Department said Friday, as American employers added 257,000 jobs in January, wage growth rebounded and more people went looking for work in an improving labor market.

With new figures on the last two months of the year, 2014 turned out to be the strongest year for job gains since 1999. The government revised upward the already healthy figures for payroll gains in November and December, increasing their estimate by 147,000. All told, the economy added, on average, 260,000 jobs a month over the course of the year.

“This is the best employment report we’ve had in a long time,” said Guy Berger, United States economist at RBS. “The labor market looks like it’s in really good shape as we head into 2015.”

The Labor Department said on Friday that the unemployment rate inched up to 5.7 percent, from 5.6 percent. But even that apparent setback was mostly good news, as it was primarily because more Americans said they were encouraged enough by their job prospects to actively look for work.

Average hourly earnings rose 0.5 percent in January, the biggest monthly gain in more than six years, though it followed a disappointing drop in December. Over the last 12 months, wages advanced at a 2.2 percent pace, significantly ahead of the inflation rate.

The overall picture was so strong, Mr. Berger said, that the Federal Reserve might begin its long-awaited move to raise short-term interest rates in June, a step many economists had been expecting to be delayed until September.

“I still think it will be September, but the odds of a June increase have gone up somewhat,” Mr. Berger added. “The fact that the economy didn’t lose a step in January bolsters the case that inflation could hit the Fed’s target.”

Other experts echoed Mr. Berger’s take. “Employment growth is astonishingly strong,” said Ian Shepherdson, chief economist at Pantheon Macroeconomics, in a note to clients immediately after the 8:30 a.m. release. “With every indicator we follow screaming that payrolls will be very strong for the foreseeable future, wage pressures will intensify.”

A few other signals are still flashing yellow, however. Data last week showed economic output grew at a slower-than-expected 2.6 percent rate in the fourth quarter of 2014.

And on Thursday, the government reported a big jump in the country’s trade deficit in December, as imports surged and exports fell. With the dollar's gaining strength and the euro and other currencies’ weakening, the trade balance may continue to weigh on the economy in 2015.

Economists had been looking for a gain of 230,000 jobs last month, but statistical quirks and the end of the holiday retail season have traditionally made January a difficult month for experts to get right ahead of time.

Government statisticians try to adjust for the annual exit of workers from stores after the end of the holiday shopping season, but this factor is always a wild card. Similarly, snowy weather in some parts of the country can also throw the numbers.

Another quirk last month was the annual adjustment of population figures used to calculate the unemployment rate in the household survey, a separate poll from the data gathered from establishments that produces the monthly change in payrolls.

In general, the household survey tends to be more volatile than the establishment survey, but this is exacerbated as benchmarks are adjusted at year-end.

Along with job creation and the unemployment rate, traders on Wall Street and policy makers are also closely watching for any sign that long-stagnant average hourly earnings are finally beginning to rise at a healthy pace.

Last month, hourly earnings rose 0.5 percent, above the consensus forecast of 0.3 percent, compared with a December drop that caught economists by surprise.

Although the unemployment rate has been steadily falling since peaking at 10 percent in October 2009, wage gains have been paltry. January's increase represents the fastest monthly gain since late 2008.

Even in months when wages did rise more sharply, hopes of sustained gains have been dashed by weakness the next month, a pattern repeated in November and December, when a 0.2 percent jump was immediately followed by a 0.2 percent dip.

The Federal Reserve, in particular, has been trying to gauge whether workers’ paychecks are rising and whether the labor market slack built up since the recession is finally receding.

The central bank has indicated that it will begin the long-anticipated process of raising short-term interest rates from near zero later this year, but persistently low inflation and little evidence of building wage pressures could delay that.

Mr. Berger, the RBS economist, cautioned that more monthly wage gains were needed before the 0.5 percent gain last month could be declared the beginning of a trend, but said it was a healthy development after December’s unexpected decline.

“The data can be noisy but it's hard to find anything negative in this report,” Mr. Berger said.