An abundance of evidence suggests the job market picked up last month. Then again, all signs pointed to a stronger labor market in December, too, when a mere 1,000 jobs were created.
Despite miscalculating nonfarm payroll growth by about 139,000 last month, economists remain generally optimistic about the employment picture for January, citing declines in weekly unemployment claims and continued expansion in the Institute for Supply Management's employment index.
Nonfarm payrolls are expected to have climbed by 165,000 last month and the jobless rate is believed to have held steady at 5.7%. Average hourly earnings are seen rising 0.2%.
"All the other labor market-related data we follow clearly suggest conditions are improving apace," noted Ian Shepherdson, chief economist at High Frequency Economics.
Weekly unemployment claims have now spent 18 consecutive weeks under the key 400,000 level thought necessary for job market improvement. Claims alone aren't usually considered a reliable indicator of payroll growth over the short term, but Shepherdson said it would be "very unusual indeed for claims to run at this level for
this long without seeing payrolls pick up markedly."
In addition, economists note that the employment component of the ISM's manufacturing index has continued to show expansion and is consistent with nonfarm payrolls rising about 250,000 a month.
Layoff announcements as reported by outplacement firm Challenger Gray & Christmas are also showing improvement. Although job cuts rose sharply in January from the prior month, they are still down 11% from last year and are 53% lower than reported in January 2002.
Meanwhile, a recent survey from human resource consulting firm DBM showed that 51% of HR professionals plan to boost hiring activity "moderately to aggressively" in 2004, a 35% increase from last year. "The good news is that the job market is finally opening up in response to improving economic conditions," said Tom Silveri, president of DBM.
Of course, many of these trends were evident in December and the employment report was still a huge disappointment. Some economists felt that the December numbers were perhaps skewed by seasonal factors but others disputed that notion, saying that strong productivity, overseas outsourcing and a general reluctance to hire were the real culprits.
Still, it appears that the
is incredulous about last month's payroll data. "Although new hiring remains subdued, other indicators suggest an improvement in the labor market," the central bank said in its policy statement last week.
Gary Thayer, chief economist at A.G. Edwards, is looking for 200,000 job gains in January, saying that the December report was "out of line" with other measures of employment. "If not this month, then maybe by next month we'll start to see job growth close to 200,000," he said.
Josh Feinman, chief economist at Deutsche Asset Management, is also looking for 200,000 job gains but conceded that it's hard to predict what will happen based on other data the market has received so far. Over the past few months, he said, there has been less improvement in the payroll data than one might have thought given strength in other labor market indicators.
"When you have a bunch of economic indicators and all of them except one are sending the same message, you tend to discount the outlier," he said. "The reason you're more hesitant to do that in this case is that the one sending the seemingly outlier message is probably the best survey we have."
Economists have long maintained that the economic recovery can't go on for very long unless hiring starts to improve. After all, the U.S. economy is dependent on consumer spending and this tends to slow down when unemployment is high. But some investors are concerned that a stronger job market could lead to higher interest rates.
Smith Barney analyst Tobias Levkovich said it took six months of consecutive employment gains of more than 200,000 per month for the Fed to lift rates in 1994, "and one would think that in an environment of needed global economic reflation the Fed would err on the side of waiting even longer this time."
Still, a sharp jump in payrolls Friday could fuel fears that the Fed will hike sooner rather than later. A sizeable pickup in the job market could also mean the end of rapid corporate earnings growth. In recent months, profits have soared as companies have kept costs low and forced more work out of fewer employees.