Upbeat Jobs Data Could Move Up Fed Action
Continued strength in the employment market means the Fed will most likely act to raise rates at its June meeting, says Morningstar's Francisco Torralba.
Upbeat Jobs Data Could Move Up Fed Action
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Jeremy Glaser: For Morningstar, I'm Jeremy Glaser. The U.S. economy added 257,000 jobs in January, higher than economists had expected. Bob Johnson is out this week, but I'm here with Francisco Torralba--he is an economist with Morningstar Investment Management--for his take on this report.
Francisco, thanks for joining me.
Francisco Torralba: Thanks for having me.
Glaser: So, this 257,000 number was better than expected. How would you characterize it compared with how you were thinking about it this month?
Torralba: It was an excellent report, overall. I have a hard time finding anything negative. The payroll gain was higher than expected--maybe about 20,000 to 40,000 more than I expected and most economists expected as well. Unemployment went up by 0.1%, but it was for good reasons because more people are looking for jobs. So, it was an excellent report, overall.
Glaser: How about revisions? Was there any sign that maybe we were giving back some of the gains that we saw earlier?
Torralba: No, actually what happened is, for November and December, numbers were revised up. So, there were, I think, 140,000 more jobs than we had estimated previously, and then there were the benchmark revisions, which is when the [Bureau of Labor Statistics] revises the entire year's series, and that generally indicates higher gains also than we had previously estimated.
Glaser: Given some of these revisions, can you help put this number into context now? What does growth look like versus historical norms?
Torralba: Over the past year, we've seen a slowly increasing trend in the number of jobs that we add every month. Over the past three months, in particular, this is the largest three-month gain in payrolls since 1997. So, it's pretty good.
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Glaser: How about wage growth? That's an area that has been lagging a little as jobs have been added. What did that look like at the quarter-end?
Torralba: We were a bit concerned because in December there was a negative change in hourly wages, but that has gone away this month. It was an increase in January, and the year-over-year nominal wage growth was 2.2%, which is higher than inflation, meaning real positive earnings.
Glaser: Now, where were these jobs added? What sectors looked strong in the month?
Torralba: This month, I believe it was construction and health care. And retail as well. I think construction is particularly positive. It will contribute to wage growth because average wages in construction are generally higher than in most service industries.
Glaser: On the negative side, did we see any impacts of lower oil prices, lower energy prices on hiring in those areas?
Torralba: Yes, there was a small decline in jobs in mining, which includes the oil sector. That's probably because of less drilling activity because of lower oil prices. Obviously, in oil states, that's a big deal. Overall, for the U.S. economy, the mining sector employs relatively few people. So, it's not a big minus for the payroll number.
Glaser: The Federal Reserve is obviously very focused on employment when making their monetary policy decisions. Does a report like this, do these upward revisions mean that they could pull forward their decision to raise rates?
Torralba: Reports like this do support the idea that the Fed might start raising rates a little earlier than we had previously anticipated. Before this report, I thought even in June they might not do anything; they might even wait for one more meeting after June. This report makes me think maybe June is the time when they start raising rates. They have the advantage of looking at another jobs report in early March before they have their March meeting and then another meeting in April. So, obviously, they will be looking at that.
On the other hand--of course, there needs to be another hand--inflation has been below the Fed's target for a long time. Even core inflation is below target, and it's been below target for quite some time. That might give the Fed officials pause before making that decision.
Glaser: Francisco, thank you for your take on this report today.
Torralba: Thank you for having me.
Glaser: For Morningstar, I'm Jeremy Glaser. Thanks for watching.
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