US non-farm payrolls jump by 304,000 in January

US non-farm payrolls increased by 304,000 at the start of 2019, underlining the strength of the country's jobs market, economists said.

Commenting on Friday's data from the Department of Labor, Ian Shepherdson, the chief economist at Pantheon Macroeconomics, said: "Private sector payrolls rose by an average of 234K the three months to January, the best performance in three years. So much for the idea that the drop in stock prices would quickly work through into the real economy."

The consensus estimate had been for a reading of only 163,000 in January.

Offsetting the overshoot in the headline number, revisions to the prior two months' worth of data were a combined -70,000, with December's print of 312,000 marked down to show a still strong 222,000.

Joblessness on the other hand surprised to the upside, with the rate of unemployment rising by a tenth of a percentage point from the prior month level to 4.0%, as employment on the Household Survey's measure declined by 251,000 when compared to December, as a result of the partial federal government shutdown.

On this occasion, the difference between the readings on non-farm payrolls, derived from the Establishment Survey, and the jobless data was because the former survey counts anyone who worked or was paid at all over the pay period that includes the 12th of each month as employed, as was the case for federal government employees on furlough during this shutdown.

The labour force participation rate did however improve from 63.1% for last month to 63.2% in January - the highest since 2013.

Average hourly earnings meanwhile were up by 3.2% year-on-year, which was one tenth of a percentage point less than December's upwardly revised 3.3%.

In comparison to the month before, average hourly earnings ticked higher by just 0.1% (consensus: 0.3%), albeit following an outsized increase of 0.4% in December.

Analysts weigh in

Further commenting on the implications of the jobs figures for economic policy and the markets, Shepherdson took particular issue with those market participants who were arguing that the lower-than-expected reading on earnings justified US rate-setters' dovishness when they met to decide on policy two days before.

For Shepherdson, it was a correction and "nothing more".

"AHE rose 3.3% y/y in the three months to Jan this year, compared to 3.0% in the three months to July and 2.6% in the three months to Jan 18. If that’s not an upward trend, we don’t know what is," he explained in a research note sent to clients.

The economist also pointed out that the big 'miss' in forecasts for non-farm payrolls relative to the number finally published was in large part the result of the large downward revision to December's figures as a result of the Department of Labor's annual benchmark revisions.

Also to take note of, Shepherdson said, was the unusually mild weather between the December and January survey periods, resulting in 143,000 people 'fewer than usual' unable to work on account of the weather.

Some correction of that effect was to be expected in February, he said.

On a related note, the day before, strategists at Bank of America-Merrill Lynch had told clients: "Most contrarian trade in world: is now a Fed hike in 2019...consensus now rushing back to "low growth, low rates" playbook of long credit, EM, growth stocks.

"Greatest irony of all: would be Fed ends tightening just as wage inflation accelerates; 0.4% AHE MoM would keep wage growth on track for 4% this year; best hedge against inflation & complete collapse in Fed credibility is short US dollar, long small cap value stocks."

For his part, Mickey Levy at Berenberg Capital Markets chose to draw attention to the rise in the labour force participation rate.

"The labor force participation rate for prime working-age persons jumped to 82.6% from 82.3%, the highest since April 2010 as persons’ confidence in job-finding prospects remain strong.

"The rising prime working-age labor force participation rate suggests that the potential labor supply is larger and more elastic than assumed. We believe this to be the most important labor market development in recent years that explains the stronger-than-expected job growth and healthy but constrained wage gains. Fed officials are finally taking note of this important trend.

"[...] Continued solid job and hourly earnings growth and improvement in hours worked are expected to support sustained healthy consumption growth that should offset a flattening of business capital spending and support sustained GDP growth.

"U.S. economic growth is slowing from its rapid 2018 pace, but the continued robust gains in employment may cause pause to commentators that have been calling for recession."