January jobs report: Economy adds 225,000 payrolls, unemployment rate ticks up to 3.6%

The U.S. economy added a better than expected 225,000 jobs in January, with warmer weather during the month helping boost hiring even in a persistently tight labor market.

Meanwhile, the unemployment rate rose slightly to 3.6%, and average hourly earnings growth accelerated over last year.

Here were the main metrics from the Department of Labor’s January jobs report, compared to consensus expectations compiled by Bloomberg:

  • Change in nonfarm payrolls: +225,000 vs. +165,000 expected and +147,000 in December

  • Unemployment rate: 3.6% vs. 3.5% expected and 3.5% in December

  • Average hourly earnings month on month: +0.2% vs. +0.3% expected and +0.1% in December

  • Average hourly earnings year on year: +3.1% vs. +3.0% expected and +3.0% in December

The January jobs report also included upward revisions to each of November’s and December’s non-farm payrolls figures. November’s payrolls were upwardly revised by 5,000 to 261,000, while December’s were upwardly revised by 2,000 to 147,000. These changes raised the three-month average for job gains to 211,000.

Beneath the headline results, the labor force participation rate rose to 63.4%, or the highest level since 2013, from 63.2% in December. A higher labor force participation rate indicates a greater proportion of the working-age population is working or actively seeking employment.

The U-6 measure of unemployment, which includes workers no longer seeking jobs and part-time workers who would rather have full-time work, rose slightly to 6.9%, from the 6.7% rate from December. But this broad measure of joblessness has still remained on a steady downtrend over the past several years.

"The first month of the year saw hiring surge above expectations despite the challenges of what’s broadly viewed as a tight job market,” Mark Hamrick, senior economic analyst for Bankrate, said in an email. “Payroll gains might have been juiced to a degree by warm January weather with job growth in both construction and leisure and hospitality, led by bars and restaurants, coming in strong."

In keeping with recent trends, most of January’s payroll gains came from the private service-providing sector, with education and health services leading advances with 72,000 new payrolls for the month. This was more than triple the 22,000 gains in those industries from December, and 29% higher than gains in these industries from January last year.

Leisure and hospitality industries also posted strong job gains, adding 36,000 payrolls in January and matching December’s additions.

Retail trade, however, was a weaker spot in the services sector in the January jobs report, reflecting some payback after surging December hiring in these industries around the holidays. Retail trade lost 8,300 payrolls in January.

At a glance: January 2020 jobs report

Within the goods-producing sector, manufacturing industries lost more jobs than expected, shedding 12,000 in January versus the 2,000 anticipated. December’s manufacturing job losses, however, were revised to just 5,000, from the 12,000 previously reported.

Construction payrolls rose by 44,000 in January, or quadruple the gains from December but below last January’s increase of 50,000.

Wage growth, which had slowed in December, picked back up in January, rising by 0.2% over December. Year on year, average hourly earnings rose 3.1%, beating expectations and accelerating relative to December’s pace of wage growth, but coming in below last year’s peak of 3.5%.

Ahead of the January jobs report, a number of other employment indicators presaged ongoing momentum in the labor market.

Weekly new unemployment claims declined in January after rising in December. For the week of the January payrolls survey, or the week of the 12th, claims were lower by 12,000 relative to December.

Meanwhile, the employment component of the Institute of Supply Management’s manufacturing purchasing managers’ index climbed in January. The non-manufacturing PMI, while lower in January relative to December, held above the neutral level of 50 to indicate expansion.

And on Wednesday, ADP/Moody’s monthly report showed private payrolls climbed by the most since May 2015 in January, driven by employment gains in the services sector. Private sector payrolls rose by 291,000 in January, or well above the 199,000 from December, according to the ADP/Moody’s report.

Emily McCormick is a reporter for Yahoo Finance. Follow her on Twitter: @emily_mcck

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