Today’s recent nonfarm payrolls report shows extremely strong growth in nonfarm payrolls which surged by 304,000 according to the Labor Department, vastly surpassing expectations of just 170,000 outlined by Dow Jones-surveyed economists.

Key Takeaways

• Nonfarm payrolls in January came in at 304,000, smashing expectations of 170,000.
• December’s reported gains were proven to be wildly inaccurate and revised from 312,000 to 222,000.
• November’s gains were revised up from 176,000 to 196,000.
• The unemployment rate actually rose slightly to 4%, a level last seen in June, and likely due to the hundreds of thousands of workers furloughed during the government shutdown.

The report shows surprisingly strong labor market activity that outpaced all growth estimates following the longest partial government shutdown in US history.

Given the strength of the current market, the shutdown is the likely cause of the bump in the unemployment rate, which some analysts have been expecting. Having said that, officials have said that federal workers were counted as employed during shutdown throughout which they mostly worked without pay, because they did receive pay during the week of the survey (Jan 12). With the shutdown taken into account, the federal government employment actually rose by 1,000 jobs.

Unemployment rate excluding persons on temporary layoff (to strip out shutdown effect), now vs 18 years ago #TLT #NonFarmPayrolls pic.twitter.com/T0l439wXd7

— Jenna & John (@StrategicBond) February 1, 2019

100 Months of Job Growth

Despite expectations that 2019 would be a cool down period, the labor market continues to perform well with January being the 100^th month in a row of job creation, by far the longest such period on record.

However, there were some setbacks as well with December’s data being significantly revised down by 90,000 jobs. Even with November figures being revised upwards, data for the two months was 70,000 jobs too high which brings the three-month average down to 241,000 – this, however, is still well above the norm for an economic expansion of this length. The average monthly gain in 2017 was 223,000.

A separate measure of unemployment which accounts for discouraged workers and those holding part-time positions out of necessity jumped to 8.1% from 7.6% which is in line with the same period last year.

Wage Growth Not as Strong

Average hourly wage growth grew by $0.03 for January, or 0.1%, well below the 0.3% gain that was expected. However, annually that amounted to a 3.2% increase which is consistent with the last few months of activity.

A Bureau of Labor Statistics official stated that the government shutdown did not impact the ability to make accurate estimates.

The number of ‘underemployed’ people working part-time for economic reasons saw a huge increase, rising 11% to 5.1 million. The household survey’s level of unemployed people rose by 214,000 or 4% to 6.5 million, and the number of employed people in that survey dropped by 251,000 to 156.7 million.

Sector Report

There was jobs growth in multiple sectors.

Services rose by 224,000, the biggest monthly gain of all sectors. Goods-producing industries rose by 72,000. Leisure and hospitality rose by 74,000 positions with bars and restaurants accounting for a total of 37,000 positions.

Construction rose by 52,000 and heath care increased by 42,000. Transportation and warehousing posted a rise of 27,000, and retail rose by 21,000, after rising by only 26,000 throughout the entire year. Professional and business services rose 30,000 and manufacturing increased by 13,000.

The average work week held firm at 34.5 hours, and there was no change in the labor force participation rate of 63.1% although the number of those not counted in the labor force fell by 639,000.

Very strong demand for labor is the key takeaway from what is a very noisy employment report for January. Nonfarm payrolls surged 304,000 to roughly double expectations but revisions to the two prior months, at a net of minus 70,000, do trim the gain somewhat. pic.twitter.com/49dPdMwFzu

— Econoday, Inc. (@Econoday) February 1, 2019

Expert Outlook

Andrew Hunter, Senior U.S. Economist at Capital Economics, said the jump in employment in January still provides "further evidence that economic growth remains solid and that the government shutdown had little impact."

"The Fed made it pretty clear this week that rates will remain on hold in the near term but, if employment growth remains this strong, there is still a fair chance of one more rate hike in the first half of this year,” he added. “Wage growth will probably trend higher again over the coming months but, with little sign that this is feeding through to sustained upward pressure on inflation, it is unlikely to have a major bearing on the Fed's plans.”

Kully Samra, vice president at Charles Schwab, says the latest data suggests the Fed might return to rate hikes sooner than traders think:

“A tight labor market and healthy wage growth support economic growth, and today’s data should buoy consumer spending and could boost the stock market. However, a string of positive data could lead the Federal Reserve to “un-pause” its rate hike cycle sooner than expected, which would likely result in volatility and pull backs,” added Samra.

This week the Fed suggested future rate decisions would be dependent on economic data, and that monetary policy was not on a predetermined course. But despite declining expectations, the Fed may still continue to hike rates this year—a slower pace of rate hikes doesn’t necessarily mean no rate hikes, especially if we get more strong jobs reports like today.”

Market Reaction

Gold has seen some volatility following the somewhat staggering jobs report which greatly outperformed all expectations for January 2019. However, despite typically having an inverse relationship with such positive reports, the price of gold is holding firm towards the high end of today’s range, rallying after ticking downward earlier on.

Spot gold last traded at $1,321.41/oz and up 0.13% on the day with a high of $1,323.23/oz and a low of $1,316.74/oz.