US labour market remains robust despite government shutdown
- US non-farm payrolls rose 304,000 in January, much stronger than expected
- The labour market remains a bright spot but the Fed will want to see improved data from other areas of the economy
The US labour market remained robust at the start of 2019, despite the partial government shutdown and rising concerns on slowing economic activity. Non-farm payrolls rose by 304,000 in January, beating forecasts of 165,000 and after a downwardly revised 222,000 gain in December 2018. The unemployment rate rose trivially to 4.0% from 3.9%, reflecting the impact of a government shutdown that involves temporary lay-offs of federal workers.
Another interesting observation related to the government shutdown is that the number of people working part-time for economic reasons saw an unusual surge of around 500,000, pushing the under-employment rate to 8.1% from 7.6%. As the government has now re-opened, we think the negative impact should reverse and that the underlying labour market remains very solid.
Wages rose by +3.2% year-on-year, and revisions suggest previous wage growth was stronger at +3.3%. The labour participation rate rose to 63.2% from 63.1%, the highest since September 2013. While this suggests that the labour market is very tight, there appears to be some slack or potential labour supply coming into the US economy. The implication is that while wage growth is likely to sustain good momentum against a strong labour market backdrop, it is not threatening excessive inflationary pressure.
What does it mean for the Federal Reserve (Fed)? We do not think today's data will influence the recently decisively dovish tone, as the strong labour market has been a bright spot in the economy. It does give the Fed comfort that the economy is holding up well, but the Fed needs to see better data in other areas of the economy. The Fed also needs more clarity on some major global issues such as trade tensions as well as sustained recovery in financial conditions. Hence, we expect the Fed to stick to its guidance in the January Federal Open Market Committee minutes and be on hold in the near term.