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Job growth defies market expectations

FEB. 18, 2020
  • Non-farm payrolls in the U.S. grew again in January with 225,000 additions, extending the current record run of job expansion to 112 consecutive months. The U.S. employment market remains stronger than expected for such a lengthy expansion, especially with the short supply of available workers.
  • Counterintuitively, the unemployment rate rose to 3.6% from 3.5% due to a rise in labor force participation, as people who left the workforce during the previous recession returned to the labor market. The chart above shows a sharp recovery in those employed as a percentage of the total population, following a steady decline from 2000 to 2007 and a sharp drop during the global financial crisis. This was largely blamed on older workers leaving the workforce, though there’s a similar pattern for people in their prime working years (25-54). Since then, both measures have improved substantially, with the percentage of workers in the 25-54 age bracket rising to its highest level since 2001. A continued flow of people back into the workforce could sustain the expansion beyond what was previously thought possible.
  • Despite the strong job market and workforce participation, wage growth has been held in check. Wages in January grew at 3.1%, well above inflation but lower than the 3.5% rate from last August. Wage growth is a factor in consumer spending, though confidence in job prospects and the wealth effect (e.g., housing prices, stock market, etc.) are also influential. This should help keep the current growth cycle going, and in turn provide a favorable backdrop for equity returns.

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