The U.S. labor market continues to make progress

Non-farm payrolls increased by 151,000 in January. Private payrolls rose by slightly higher 158,000 led by service industries consisting of retail, health care and leisure & hospitality. Goods-producing industries also had a solid month with manufacturing and construction more than offsetting continued declines in mining. The unemployment rate dropped to 4.9%, as household employment growth outpaced the gain in the labor force, leading the participation rate to edge higher to 62.7%. Average hourly earnings rose by 0.5% during the month.

The headline payroll gain slowed from the fourth-quarter pace, but much of it was to be expected given the overly warm start to winter. In fact, the weakness appears concentrated in temporary help services, which cut the 25,000 jobs that it added the previous month. Interestingly, despite continued contractions in manufacturing activity reported in the ISM index, the sector hired more staff than it had in over a year, with broad-based gains suggesting that the worst of the recent weakness may be over.

The gains in employment and participation rates together with the improving unemployment rate also suggest the labor market remains healthy. Moreover, the tighter conditions have pushed wages up. Along with the gain in hours worked, this should lead to strong income gains and support consumer spending.

Overall, the U.S. labor market appears resilient and continues to make progress despite the global headwinds and a strong U.S. dollar.