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Best Jobs Report of the Recovery



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Blowout positive report on the labor market in January. Last month’s report was the best since the start of the recovery and this month’s was even better. Private payrolls were up 257,000, crushing the consensus expected gain of 160,000. Revisions for the past two months added another 66,000, and an annual “benchmark” revision added 143,000 for the year ending in March 2011 (+ 165,000 including government workers). Total hours worked were up 0.2 percent in January and were revised up 0.5 percent for December.

The jobless rate dropped to 8.3 percent, down from 9.1 percent a year ago. Moreover, the drop happened despite an increase in the labor force of 249,000, which more than outweighed the losses of 167,000 in November/December. The labor force is now up 907,000 from a year ago. As you can imagine, seeing this data tempts us to take a victory lap; our forecast of nonfarm payroll gains of 180,000 per month this year may now be too low.

However, today’s numbers have to be taken with a grain of salt. This winter’s weather has been unusually mild. The household survey shows typical weather-related job losses for January are 430,000, but weather only prevented 206,000 people from working this January, for a net gain of 224,000. These numbers do not match up exactly with the payroll survey — someone who can’t get to work but is still paid is counted in the payroll survey — but they do suggest some downside risk to next month’s report.

The bottom line for monetary policy is that a third round of quantitative easing, which we always believed was very unlikely, now looks even less so. The bottom line for the economy is that consumer purchasing power keeps growing. Hours worked in the private sector are up 2.7 percent in the past year, while average hourly earnings are up 1.9 percent. This translates into a 4.6 percent gain in cash earnings (excluding fringe benefits, like health insurance), which is more than enough to outpace inflation. The “growth deniers” need to develop a new narrative.



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