Upturn in pay bodes well for economy despite weaker job gains

The job gains in the government's January employment report were not as strong as in recent months, but one thing the data did was dampen concerns that the U.S. economy might be about to slip into a new recession.
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The job gains in the government's January employment report were not as strong as in recent months, but one thing the data did was dampen concerns that the U.S. economy might be about to slip into a new recession.

"The January employment report provides yet one more piece of evidence that the chance of recession this year is truly remote," Bernard Baumohl, chief global economist for the Economic Outlook Group in Princeton, N.J., told the New York Times after the Labor Department said the country added 151,000 jobs in January and the jobless rate fell to an eight-year low of 4.9 percent.

The number that economists and analysts found particularly encouraging was that average hourly earnings rose 0.5 percent. The country's several-year recovery from the Great Recession has been painfully slow, and one significant reason has been that even as jobs returned, wages remained stagnant.

Consumers have moved into each new season — whether it's spring for home improvements, summer for vacations or the holidays for gift giving — with little or no additional money to spend.

The Labor Department's new report suggests wage stagnation is easing.

"The gain in average hourly earnings is significant," Diane Swonk, an independent economist in Chicago, told the Times. Although sustained increases will be required to overcome years of flat pay, "it's a move in the right direction, and that's reassuring," she added.

Reuters reported that in addition to the increase in pay — the biggest gain in a year — employers boosted workers' hours. Manufacturing added more jobs than it has at any time since August of 2013.

"The fact that payroll gains fell back to earth is not necessarily a bad sign," Nariman Behravesh, chief economist at IHS in Lexington, Mass., told Reuters.

"Most indications are that the job market in the U.S. is on a good footing."

The Commerce Department's report on personal income for December also was released last week, and it proved a welcome precursor to Friday's jobs numbers. Personal income increased by $42.5 billion and disposable personal income rose by $37.8 billion. Both represented gains of 0.3 percent.

Last week's major big-ticket report showed that U.S. auto sales were mixed in January. General Motors, Chrysler, Nissan and Fiat had gains, but sales declined at Ford, Honda and Toyota.

Weather was a factor — an East Coast blizzard kept potential buyers at home — but the discounts that automakers and dealers were offering and steadily falling gasoline prices were working in the industry's favor.

"Despite the storm we're still seeing a strong month," John Humphrey, senior vice president of the global automotive practice at researcher J.D. Power & Associates, told the Wall Street Journal.

Humphrey said the storm cost the auto industry about 15,000 sales on the East Coast in January, but auto executives believe that the country's steady job gains and strength in the housing market bode well for sales increases as winter turns to spring. The industry sold a record 17.5 million cars and trucks in 2015.

"We are certainly looking forward to February and March being strong," Mark La Neve, Ford's U.S. sales chief, told the Journal.

The recreational boating industry knows the factors that boost auto sales work in their favor as well.

Economy watchers will have to wait until Friday for the week's key government report — retail sales for January — although Federal Reserve chairman Janet Yellen's semiannual report to Congress on Wednesday will yield insight into what the central bank thinks of what we've been seeing in the economy.

Consumers will weigh in on Friday as well in the preliminary University of Michigan Consumer Sentiment Index for February. Economists’ consensus view is that the barometer will stay where it has been for the past two months, at about the 92 level.

If the pay increases the jobs report reflected grow and become more widespread, consumers' mood could brighten heading into the spring. That would boost the prospects of those who make and sell boats, cars and plenty of other consumer goods — products whose manufacturers sense are the subject of pent-up demand.

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