The latest data on manufacturing employment provides a bit of encouragement for manufacturers that have been beleaguered by the global slowdown and pullbacks in the energy sector. The Bureau of Labor Statistics said that manufacturing employment rose by 29,000 in January, much stronger than expected at the start of the new year. It was the fourth consecutive monthly job gain and the strongest since November 2014, when manufacturing demand and production were growing more robustly than seen today. There are currently 12.36 million workers in the sector, with manufactures adding 903,000 more employees since the Great Recession. At the same time, it is important to note that employment growth has been quite soft for much of the past year, with the sector adding just 33,000 workers in 2015.
Durable and nondurable goods manufacturers both added more workers on net in January, up 17,000 and 12,000, respectively. Average weekly earnings for manufacturing employees rose from $1,036.52 in December to $1,042.33 in January. On a year-over-year basis, average weekly earnings have risen 1.8 percent since January 2015. Average weekly hours inched up from 40.6 hours to 40.7 hours for the month, with overtime hours unchanged at 3.3 hours.
In the larger economy, nonfarm payrolls increased by 151,000 workers in January. This was well below the consensus estimate of around 200,000, and the slowest pace of growth in four months. At the same time, the unemployment rate fell from 5.0 percent to 4.9 percent, its lowest level since February 2008. This was true even as the participation rate rose from 62.6 percent to 62.7 percent.
Overall, this report provides mixed news for the labor market and larger economy. The stronger-than-expected gains in manufacturing employment provide a hint of optimism for a sector that has been hard-hit by global headwinds over the course of the past year, and the reduction in the unemployment rate suggests that the labor market continues to move in the right direction. Pro-manufacturing policies including those outlined in the NAM’s 2016 “Competing to Win” document will help ensure manufacturers continue to grow and compete.
This mixed message also likely complicates what the Federal Reserve will do at its March meeting. Recent softness in economic activity has strengthened the hand of those participants wanting to see better data before further raising short-term rates, likely pushing back an increase until April or June. Yet, the decline in the unemployment rate and surprisingly strong gains for manufacturing might seem to undercut that argument, providing signs of a possible turnaround. My guess is that the Federal Open Market Committee will shift its thinking to April or June, but if today’s numbers are the beginning of such a turnaround, March will once again be back on the table.