U.S. payroll gains seen picking up, benchmark revisions under spotlight

[February 07, 2020]  By Lucia Mutikani

WASHINGTON (Reuters) - U.S. job growth likely picked up in January, with unseasonably mild temperatures seen boosting hiring in the weather-sensitive sectors, indicating the economy will probably continue to grow moderately despite a deepening slump in business investment.

The Labor Department's closely watched monthly employment report on Friday is, however, expected to show job gains from April 2018 through March 2019 were not as robust as originally estimated. Any steep downgrade to payrolls during that period would suggest a significant slowdown in job growth this year.

"The employment report will support expectations that the economic expansion is going to continue at a moderate pace," said Sam Bullard, a senior economist at Wells Fargo Securities in Charlotte, North Carolina. "But benchmark revisions will show weaker momentum in the labor market, which should weigh on the markets' expectations for payroll growth going forward."

According to a Reuters poll of economists, the government's survey of establishments will probably show nonfarm payrolls increased by 160,000 jobs in January, likely driven by hiring in construction and leisure and hospitality industries.

While that would be higher than the 145,000 jobs created in December, payrolls would be below the monthly average of 176,000 jobs in 2019. Employment gains are seen slowing in February as the coronavirus, which has killed hundreds in China and infected thousands globally, disrupts supply chains, especially for electronics producers such as Apple <AAPL.O>.

The survey was, however, conducted before Wednesday's ADP National Employment Report, which showed mild weather helping to hoist private payrolls by 291,000 jobs in January, the most since May 2015, after increasing 199,000 in December.

But the bullish ADP report was tempered by a survey from the Institute for Supply Management showing its measure of services industry employment fell for a second straight month in January. While the ISM's gauge of manufacturing employment rose last month, it remained stuck in contraction territory.

The annual benchmark revisions to payrolls will attract attention amid concerns the Labor Department's Bureau of Labor Statistics, which compiles the employment data, may not be fully capturing the impact on payrolls of President Donald Trump's 19-month-long trade war with China, which has contributed to the longest downturn in business investment since 2009.

The government last August estimated that the economy created 501,000 fewer jobs in the 12 months through March 2019 than previously reported, the biggest downward revision in the level of employment in a decade. That suggests monthly job growth in each of the months from April 2018 through March 2019, could be downgraded by around 42,000.

Economists say the large revision suggests the government's birth-death model, which it uses to calculate the net number of jobs from new business and closings is faulty.

"Historically, payrolls have tended to be overstated when the trend in growth is weakening, and vice versa," said Kevin Cummins, senior U.S. economist at NatWest Markets in Stamford, Connecticut. "The revisions could have a meaningful impact on assessments of the labor market."

People attend TechFair LA, a technology job fair, in Los Angeles, California, U.S., January 26, 2017. REUTERS/Lucy Nicholson/File Photo

WORKER SHORTAGE

The slowdown in job growth is blamed on worker shortages and ebbing demand for labor. Even though employment growth has slowed, the pace remains well above the 100,000 jobs per month needed to keep up with growth in the working age population.

The government will on Friday also introduce updated population estimates to its smaller household survey data, including employment and labor force participation. The unemployment rate is calculated from the household survey.

The new population controls mean that the January unemployment rate and other measures derived from the household survey will not be directly comparable to December data.

The unemployment rate is forecast unchanged at near a 50-year low of 3.5% in January.

The low jobless rate and anecdotal evidence of worker shortages have not spurred stronger wage inflation. Average hourly earnings are forecast rising 0.3% last month after edging up 0.1% in December. That would lift the annual increase in wages to 3.0% in January from 2.9% in December.

Federal Reserve Chairman Jerome Powell said last month the United States' low labor force participation, relative to those of other advanced economies "represents more labor supply and it may be holding down wages."

Still, wage growth is enough to support a decent pace of consumer spending and keep the economy chugging along. The economy grew 2.3% in 2019, the slowest performance in three years, after logging 2.9% in 2018.

Growth this year is seen around 2%, just above the 1.8% that economists say is the speed at which the economy can grow over a long period without igniting inflation.

The construction industry likely added more jobs in January after payrolls increased by 20,000 jobs in December. Employment in the leisure and hospitality sector is also seen accelerating after rising by a strong 40,000 jobs in December.

But further declines in manufacturing employment are likely after the struggling sector lost 12,000 jobs in December. The industry has been the hardest hit by the U.S.-China trade war. Though Washington and Beijing signed a Phase 1 trade deal last month, U.S. tariffs on $360 billion of Chinese imports, about two-thirds of the total, remained in place.

Manufacturing is also being squeezed by Boeing's <BA.N> suspension last month of the production of its troubled 737 MAX jetliner. Boeing's biggest supplier, Spirit AeroSystems Holdings Inc said last month it planned to lay off more than 20% of the workforce at its Wichita-Kansas because of the 737 MAX production suspension.

Government payrolls are forecast rising by 10,000 jobs in January, with some hiring for the 2020 Decennial census seen.

(Reporting by Lucia Mutikani; Editing by Daniel Wallis)

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