The U.S. labour market appears to be turning a corner, at long last.
January delivered the strongest American employment report in nine months, according to government figures released Friday in Washington, as the jobless rate fell to the lowest level in three years, 8.3 per cent. The 243,000 new workers added by companies eclipsed even the most optimistic forecasts from Wall Street economists.
Manufacturers led the way, as factory payrolls grew by the most in a year. But the gains spanned everything from temp worker agencies and accounting firms to the long-suffering construction industry. Even better, data for the prior two months were revised to add another 60,000 jobs.
The steady improvement suggests efforts by the U.S. Federal Reserve to spur hiring are beginning to work, raising questions about whether Ben Bernanke and his officials will keep interest rates near zero through late 2014, as they pledged last week.
The news is good for Canada, despite a relatively weak jobs report out of Statistics Canada. More U.S. consumers having paycheques likely means that Canada's chief export market has enough momentum to keep the economy on this side of the border growing, too, barring a catastrophe in Europe.
“It’s not just the number of people leaving the labour force that is pushing down the unemployment rate, it’s a clear decline in the number of unemployed, because they’re finding jobs,” said Sal Guatieri, a senior economist at BMO Nesbitt Burns. “The risk of a U.S. recession, and likewise a Canadian recession, have declined meaningfully in the past six months.”
Analysts described the January figures as a turning point or, as Chris Rupkey, chief financial economist at Bank of Tokyo-Mitsubishi UFJ Ltd. in New York, put it to Bloomberg News, “an important threshold.” Investors agreed, with stocks and bond yields rising after one of the strongest signs yet that a mere recession in Europe will not trip up what increasingly seems to be a self-sustaining U.S. rebound.
Paradoxically, the improving jobs market means that people who had given up looking for work will likely flock back to the labour force, boosting its numbers and restraining the drop in the unemployment rate.
In any case, some analysts tempered their enthusiasm with a healthy dose of caution.
“The numbers have put to rest the notion that the U.S. economy was at a serious risk of going into a double-dip recession on its own, which is encouraging because don’t forget the stock market took a huge hit last year when people were worried about that,” said Avery Shenfeld, chief economist at Canadian Imperial Bank of Commerce. “The question is, how long will this run?”
The U.S. economy may be shrugging off Europe’s foibles now, but the jury is out on whether the continent’s leaders will prevent their crisis from deteriorating, Dr. Shenfeld said. Also, he pointed out, “huge tax hikes and spending cuts” that loom over the U.S. next year as fiscal belt-tightening kicks in will restrain the economy and potentially make it harder to add jobs.
As it is, there are still 12.8-million unemployed, and more than 40 per cent of those people have been out of work for six months or longer.
Dr. Shenfeld noted that from February through April of 2011, the U.S. economy created 220,000 or more new jobs each month – only to weaken in the summer and fall. “We’ve had these turns before,” Dr. Shenfeld said. “Yes, it’s a definitive turn from where we were in the middle of last year, but the staying power of that turn is not yet clear.”