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Slower Job Growth Doesn’t Mean We’re Headed For A Recession

If the U.S. is headed for another recession, there isn’t much evidence of it in the latest jobs numbers.

Employers added 151,000 jobs in January, the Bureau of Labor Statistics said Friday. The figure fell short of economists’ expectations and represents the slowest pace of hiring since September.

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But while the headline payroll number may have been disappointing, the details of the report should ease concerns that the global economic slowdown is nudging the U.S. toward another recession. Manufacturing, the industry most exposed to China’s rapidly cooling economy, added jobs at the fastest pace in over a year in January. The retail and hospitality sectors, which would be the first to feel any pullback in consumer spending due to the slumping stock market, both stepped up hiring. Among big private industries, only the mining sector, which includes energy companies struggling with low oil prices, cut jobs.

Overall, the report revealed a job market that continues to improve. The unemployment rate fell to 4.9 percent, dropping below 5 percent for the first time since 2008, when the recession was in its early stages. Wages grew at their fastest pace in a year, suggesting falling unemployment is forcing employers to raise pay to find and retain workers. And those higher wages may be drawing more people to look for jobs: Labor force participation ticked up for the second month in a row.

Don’t expect recession talk to disappear because of one solid report. A slowdown in hiring was widely expected after December’s torrid job growth, but the steeper-than-expected nature of the decline will undoubtedly spark fears that the labor market has shifted into a lower gear. Layoffs remain low, but there have been recent signs that they are beginning to increase. Temporary hiring, which can give an early hint of companies’ longer-run plans, slowed sharply in January. And separate data released Friday showed that exports fell in December and the trade deficit grew, though the decline in exports was smaller than in the previous two months.

Still, the overall takeaway from Friday’s numbers is that the job market remains on solid footing. Given the rough start to the year on so many other measures of the economy, that’s a relief.

Here are a few more observations from today’s report:

Trend stays solid: Job growth was a bit slower in December than originally believed; the government revised down its estimate of December growth to 262,000 from 292,000. But that revision was nearly offset by a positive adjustment to November’s growth, to 280,000 from 252,000. Over the slightly longer run, the U.S. is adding nearly 2.7 million jobs per year; that’s down a bit from a year ago, when the annual rate of growth topped 3 million, but it remains an impressive figure. Don’t let the downward slope of the chart below scare you; at this rate, annual job growth would stay positive into 2024.

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More workers: It’s too soon to declare a clear trend, but there are signs that the long-run decline in labor force participation is beginning to reverse. The participation rate, the share of adults who are either working or actively looking for work, tumbled during the recession and continued falling in the recovery; in September, it hit a more than three-decade low. Since then, however, it has shown a modest rebound, rising in three of the past four months.

Participation is unlikely to rise quickly. The retirement of the baby boom generation means millions of workers are leaving the labor force for reasons that have nothing to do with the economy. But the recent rebound suggests that the improving job market is pulling working-age Americans off the sidelines. Indeed, the share of so-called prime-age workers — those between the ages of 25 and 54 — who are working jumped in January to its highest level since 2008.

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Higher wages: Average earnings rose by 12 cents an hour in January, the strongest gain since January 2015. The year-over-year pace of wage growth slowed slightly, but the trend remains positive; over the past year, earnings are up 2.5 percent, faster than inflation. Private companies also asked employees to work more hours, further boosting earnings and suggesting that demand for labor remains strong.

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Watch for revisions: The monthly jobs figures always come with significant uncertainty — the headline payroll figure has a margin of error of about 100,000 jobs — but that’s especially true in January. Post-holiday layoffs in the retail and transportation sectors make seasonal adjustment particularly tricky, and winter weather can often add even more complications. (Last month’s East Coast blizzard hit after the jobs numbers had already been collected.) That doesn’t mean we should ignore today’s report, but it does mean we should take it with a larger-than-usual grain of salt.

Ben Casselman is a senior editor and the chief economics writer for FiveThirtyEight.

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