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U.S. economy keeps turning the crank on jobs
January produced 157K new jobs, which was not far off from consensus of 165K. All the job creation
was in private payrolls (+166K) and was broadly based.
Today’s report incorporates the combination of annual benchmark revisions, updated seasonal
adjustment factors and updated population estimates. The net effect was an upward revision of +422K
jobs (+424K NSA) between April 2011 and March 2012, which was greater than the preliminary
estimate that was reported of 386K.
The unemployment rate edged up to 7.9% from 7.8%.
With the housing market on the comeback, construction jobs are finally responding. January produced
28K new jobs, and the 3 month average is now 27K.
The other sectors with the strongest gains were retail (+33K), education/health (+25K), leisure (+23K),
professional/business services (+25). Gains in the latter three industries does not come as a surprise,
they were the first to return to pre-recession levels.
The government sector continues to shed jobs, particularly at the local level. However, revisions
tempered some of the negative news on this front. Prior to the revisions, local governments had
slashed an outsized 71K jobs in educational services between Sept-Dec. Those losses are now more
muted at -28K. January saw a further deceleration in education job losses of -4.7K, and the hope is that
the worst of the cuts in this sector is behind us.
Key Implications
We expect the U.S. economy will chalk up roughly 2 million jobs by the end of 2013. This would be
similar to 2012, but this time we expect strengthening momentum to be back-loaded in the year. This
corresponds with an unemployment rate hovering at a still-elevated 7.5% at the end of this year, and we
don’t foresee it returning to the Federal Reserve’s 6.5% guidance until 2015.
If Congress is able to quickly resolve the battle over spending cuts, the debt ceiling and the budget, it
would remove a major weight to growth in the first half of this year. However, a forecast based on this
outcome in the current political environment is a Hail Mary pass. So, we believe hiring will remain on
the tentative side until greater policy certainty is apparent. The cautious behavior of businesses has
been well documented by the subdued pace of equipment investment growth, even with the rebound
that occurred in the fourth quarter. Investment has a tight leading relationship with private payrolls. You
don’t get a sustained pick-up in the second without the first.
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