US economy adds 111,000 jobs in January

The US jobs report for January looks reasonably good. From Reuters:

The U.S. economy added a modest 111,000 jobs in January, but the job picture was much brighter than first estimated in the final quarter of last year, a government report showed on Friday...

Wall Street analysts polled before the employment report expected the report to show 149,000 jobs were added outside the farm sector last month. They had also expected the unemployment rate to hold steady at 4.5 percent, but it edged up to 4.6 percent in one of the report's weak spots.

The report showed the employment picture for the last three months of 2006 was better than first thought, with the payroll count for the final three months of last year revised up by a total of 104,000 jobs...

On the wage front, average earnings per hour rose 0.2 percent in January to $17.09. That was a smaller gain than in December and below the 0.3 percent increase expected on Wall Street...

The jobs report also contained an annual revision in which the Labor Department recalculated its job count for the 12 months through March 2006 based on state unemployment insurance records. It said it had undercounted employment growth during that period by a hefty 752,000 jobs, or 0.6 percent.

Other indicators of the economy released yesterday also look good.

The Reuters/University of Michigan Surveys of Consumers said its final index on consumer sentiment in January rose to 96.9 from 91.7 in December. The January reading was the highest since December 2004...

Separate data from the Commerce Department on Friday also pointed to a strong 2006 finish, as new orders at U.S. factories rose a larger-than-expected 2.4 percent in December.

Non-defense capital goods orders, excluding volatile aircraft, increased 3.1 percent after a November drop. Economists see that figure as a good measure of business spending.

Nigel Gault at Global Insight summarises the employment report as follows:

Today's report tentatively suggests some slowdown in overall economic growth in the first quarter. It also suggests that manufacturing is currently undergoing a sharp inventory correction. This notion is reinforced by the evidence from the ISM survey earlier in the week, which showed inventory decumulation. But it seems that much of the correction is being accomplished by lower hours, suggesting that once stocks are cleared, manufacturing should be ready to grow again. The report also suggests some stabilization in wage inflation.

All of this news is consistent with the Federal Reserve's outlook for moderate growth and declining inflation. It supports the view of an extended hold on interest rates, with a (small) rate cut still possible in the second half of the year if inflation comes down as anticipated.