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A Mixed Payroll Picture

February 5th, 2010 Michael McDonough

January’s non-farm payrolls fell by -20K, compared to a Bloomberg consensus forecast of an increase of +15K. December’s release was revised down to -150K from -85K, while November’s number was revised up to +64K from its original release of +4K. January’s unemployment rate unexpectedly fell to 9.7%, from 10.0%–driven by a shrinking workforce.  Keep in mind that once the labor market begins to improve many of these discouraged workers will begin to move back into the labor force, having the opposite effect on the unemployment rate.

Looking at the details; manufacturing payrolls rose in January 11K, after 25 months of declines, this echoes improvements in the ISM, which I believe could come under some pressure during the first half of this year (for more on this please see my piece being published later today).  The service sector added 40K jobs.  The construction sector lost an additional 75K jobs, likely due to cold weather, which likely also show up in the month’s construction activity indices and housing starts.

Government jobs declined -8K, mostly due to losses on the state and local front, which was offset by a 33K increase on the federal front–a portion of which are temporary census workers.  There was some good news on the temporary job front–generally accepted as a good forward looking indicator–, which rose 52K during the month.

Finally, a longer average workweek (33.3 hours from 33.2) may indicate companies are moving some part-time employees back to full time, which could be an eventual prelude to hiring.  At the same time, average hourly earnings rose 0.3%  during the month.  Combined this should help bolster personal income during the month by around 0.5%.

I do not believe this report will have any major impact on the FOMC’s next meeting scheduled for March 16th.  While unemployment improved the Fed is still fully aware of the amount of slack in the system, and the relatively tepid growth outlook for the U.S. in 2010.

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