A few stats to know about the US jobs report for January 2020

The latest US jobs report was very strong, with job gains of +225k – way above expectations of +175k – and positive revisions to the prior two months.

Supposedly warm weather was responsible for boosting construction jobs by +44k, but manufacturing jobs fell -12k, the third loss in four months. The unemployment rate crept up 0.1% to 3.6%, but the participation rate jumped up +0.2% to 63.4%, the highest in over six years.  Wages were also a shade stronger than expected coming in at 3.1% y/y vs last month’s 3.0%. What’s not to like?  Really, it was very good.

Reports from earlier last week also indicated a hot labor market.  On Wednesday the ADP employment report went nuclear, far above expectations and the highest in five years.  Then on Thursday, weekly jobless claims fell for the 9th time in 11 weeks coming back to near record lows.

Jobless claims had been sending off a strong signal of an impending slowdown since bottoming last April… until the last few weeks that is.

Interpreting the ISM Indexes

More good news was that the ISM manufacturing index came in above the 50 level, signaling expansion for the first time in six months. The index gained 3.1 points to 50.9 and details were strong as well.  Of the ten components of the survey, nine rose, and six are now above 50, which is the highest in eight months. The upturn in the index is one of several global indicators showing what appears to be a nascent recovery in manufacturing.

However, one should never put too much weight on a single data point, and that’s particularly true in this case, for two reasons.  First, the survey was taken before the full effects of the production shutdown of Boeing’s 737 Max had emerged, a development which is expected to take off a huge -0.5% of Q1 US GDP growth. Secondly, the survey was taken before the effects of the coronavirus had even started, a development which is likely to shave -0.1% to -0.3% off of Q1 GDP in the US.

Currently, there are over 40 million people under lockdown in China, which will surely have a dramatic effect on Q1 GDP and is also resulting in the shutdown of many factories, in turn disrupting global supply chains. Combined with the Boeing shutdown, the nascent recovery in manufacturing may well be snuffed out in the coming months.

The ISM non-manufacturing (services) index, which hasn’t been below 50 in over 10 years, rose 0.6 points to 55.5. The internals of the survey were mixed, however, as eight of the ten components remain above 50, but seven of them declined.

Despite the good news on the ISM indexes, it’s also clear that both of them have been in an undeniable downtrend since late 2018.

The Chinese cut tariffs in half on $75B of US imports, a move which will help alleviate the trade feud and give a tiny boost to GDP. For perspective, the US exports about $2,500b annually, so the tariff reductions are on only 3% of all exports. But it is a step in the right direction.

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