U.S. Economy Adds 151,000 Jobs in January

The U.S. added 151,000 jobs in January, weaker than expected and additional fuel for concerns the U.S. economy is slowing down.

There were silver linings to be found in the clouds, however, as wages and worker participation rose.

The headline unemployment rate was 4.9%, the lowest in eight year. Analysts had predicted the economy would generate 190,000 new jobs and that the unemployment rate would hold steady at 5%.

Wages showed signs of growth, rising 2.5% from a year ago, and the labor force participation rate, a key measure of the percentage of Americans working, rose slightly from a month ago to 62.7%.

“Hiring continued at a moderate pace last month in the face of a world of trouble. It is good to see the unemployment rate slip, but hiring was a bit shy of expectations,” said Mark Hamrick, Bankrate.com’s senior economic analyst.

“We knew that the job gains in the fourth quarter of last year would be tough to match, but even with the modest reassurance we’ve received thanks to this January hiring snapshot, questions remain about the sustainability of the recovery.”

The latest numbers fall short of the December report, which was surprisingly strong in terms of new jobs. Although that report was revised downward by 30,000 in the current report. The December report was undermined by weak wage growth data, a longstanding problem that has not gone away despite the relatively large numbers of jobs created each month and a headline unemployment rate currently positioned at an eight year low.

“Employment rose in several industries, led by retail trade, food services and drinking places, health care, and manufacturing. Private educational services and transportation and warehousing lost jobs,” the Labor Department reported in a statement. “Mining employment continued to decline. Wages have emerged as perhaps the most important element of the monthly jobs report. Analysts had forecast that wages would climb a tepid 0.3% in January over December.”

Employment in other major industries, including construction, wholesale trade, and government, changed little over the month, the Labor Department said.

Federal Reserve policy makers have predicted for months that average hourly wages are bound to start rising as a result of the tightening jobs market, and that when they do increased consumer spending will push prices higher and lift inflation toward the Fed’s 2% target.

When the Fed raised rates in December for the first time in nearly a decade they did it essentially under that scenario. In fact, Fed policy makers suggested that labor markets were gaining so much momentum that the central bank would probably be able to raise rates a total of four times in 2016, moving U.S. monetary policy that much closer to ‘normal.’

Perhaps that scenario is starting to slowly materialize, a very positive sign in light of all the recent global turbulence. Shortly after the Fed raised rates on Dec. 16 new concerns emerged out of China that the world’s second largest economy was weakening after years of strong growth. That combined with uncertainty caused by the freefalling price of oil sent U.S. markets into a tailspin in the first weeks of 2016.

Mixed-at-best data out of the U.S. hasn’t helped, namely a fourth quarter GDP reading of 0.7%, confirming economists fears that the U.S. economy was dragging toward the end of 2015.

All of that turmoil has caused some influential Fed members to backtrack a bit on their December optimism. New York Fed President William Dudley, an influential member of the policy-setting Federal Open Markets Committee, acknowledged earlier this week that global financial markets have grown increasingly turbulent in the seven weeks since the Fed raised rates.

The Fed’s rosy forecasts for 2016 now seem premature, and the mixed January jobs report suggests it will be a rocky ride going forward.

“Signs of a slowdown in hiring, still-weak annual pay growth and disappointing survey data, all pitched alongside an adverse financial market environment so far this year, reduce the odds of the Fed hiking rates again in March,” said Chris Williamson, chief economist at research firm Markit.