Hiring grows in January; are bigger pay raises next?

In this Friday, Jan. 23, 2015 photo, job applicant Rafael Ferrer, 49, left, shakes hands with a representative of the Hilton Bentley Miami Beach hotel during a job fair at the Hospitality Institute, Friday, Jan. 23, 2015, in Miami.
In this Friday, Jan. 23, 2015 photo, job applicant Rafael Ferrer, 49, left, shakes hands with a representative of the Hilton Bentley Miami Beach hotel during a job fair at the Hospitality Institute, Friday, Jan. 23, 2015, in Miami. AP

The rise in hiring and wages in January, reported Friday, suggests the economy enjoyed tail winds going into 2015, but deeper in the numbers are reminders of the long climb back that remains.

In its first jobs report for the year, the Labor Department said employers had added a better-than-expected 257,000 jobs in January. It marked the 11th consecutive month of job gains above 200,000, a winning streak not seen since 1994.

And after posting an alarming slip in December, average hourly earnings bounced back last month, rising half a percentage point. Over the past 12 months, wages have risen by 2.2 percent, faster than the rate of inflation.

“Wage growth, which is edging higher, will accelerate more substantially by this time next year,” predicted Mark Zandi, chief economist with Moody’s Analytics. “Perceptions about the economy will brighten significantly in response.”

Looked at over the longer horizon dating to the Great Recession, wages have been flat. That’s partly because so many people exited the workforce, meaning the falling unemployment rate partly reflected a smaller workforce.

And that’s where Friday’s report from the Labor Department was most heartening. Powered by the return of people who’d exited the labor force, the unemployment rate ticked up a tenth of a percentage point, to 5.7 percent. There are indications that these so-called missing workers are returning to look for jobs.

An estimated 6 million workers have yet to come back, suggesting that the unemployment rate should be much higher than its official number. As more of these people re-enter the labor force and find jobs, it should tighten the job market, giving workers a stronger hand to demand wage increases.

One sign of returning workers can be found in the Bureau of Labor Statistics’ measure of the duration of unemployment. Although the labor force is growing, so is the midpoint length of time the unemployed remain without jobs. That midpoint rose from 12.6 weeks in December to 13.4 weeks in January.

“It means that we’ve gotten people back in, but they’re still finding it difficult to find a job,” said Bill Spriggs, chief economist for the AFL-CIO. “We still have a way to go before people can declare this done. We’re nowhere near normal.”

If the pace of hiring continues to sizzle, however, the return to normalcy will be accelerated, and might come next year.

“Layoffs are near record lows, job openings are at record highs and the pace of hiring is quickly reviving,” said Zandi. “At the pace of growth, unemployment and underemployment will rapidly decline, and the economy will be back to full employment by no later than mid-2016.”

Fears of large job losses in the energy and mining sectors weren’t borne out in January’s report. They combined for a loss of about 1,900 jobs over the month.

Revisions to November and December estimates were very heartening. They showed a combined 147,000 more jobs than first thought, bringing November’s hiring number to a scorching 423,000 from an initial 353,000. December hiring was 329,000, up from the initially estimated 252,000.

“It was hard to find a bad piece of data in the January employment report,” said an analysis from economists at Bank of America Merrill Lynch in New York.

The construction sector, which has lagged during the recovery, added 39,000 jobs in January after rising by 48,000 in December.

“Contractors have stayed busy this winter and expect to keep hiring through 2015 – if they can find the workers they need,” said Ken Simonson, chief economist for the Associated General Contractors of America. “The list of projects is growing in most states and most nonresidential segments, in addition to continuing strong demand for apartment buildings.”

Construction employment totaled 6.3 million in January, the highest in nearly six years. Over the past 12 months the construction sector gained 308,000 jobs, a 5.1 percent increase.

“The housing market is stabilizing,” said Spriggs of the AFL-CIO, noting that December’s construction gains were in nonresidential and January’s in residential, suggesting a broad rebound.

The manufacturing sector continued its slow but steady return in its pace of hiring, with another 22,000 jobs added in January.

“We expect to see continued healthy gains in manufacturing employment in 2015, but business leaders will also be closely watching a number of downside risks, ranging from slowing global growth to a still-cautious consumer to the prospect of increased interest rates,” said Chad Moutray, chief economist for the National Association of Manufacturers.

The holidays ended but retailers kept hiring, adding almost 46,000 jobs in January.

“The report only enhances the broader focus. . . . Employment is solid and should continue to be positive,” said Jack Kleinhenz, chief economist for the National Retail Federation, who pointed to wage growth of 0.5 percent, which “suggests higher wage growth is likely going forward.”

The big loser in January was the government sector, falling by 10,000 jobs in January and dragging down the stronger private-sector hiring number of 267,000.

<h4>JANUARY BY THE NUMBERS</h4> <ul> <li>Professional and business services, up 39,000</li> <li>Manufacturing, up 22,000</li> <li>Retail, up 45,900</li> <li>Leisure and hospitality up 37,000</li> <li>Health care, up 38,300</li> <li>Finance, up 26,000</li> <li>Construction, up 39,000. <li>Temporary help services, down 4,100</li> <li>Transportation and warehousing down 8,600</li> <li>Government, down 10,000</li> </ul>