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Economic Watch: Job Growth Continues as Manufacturing Improves

February 3, 2017

By Evan Lockridge

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New figures show employers in the U.S. continue to add people to their payrolls at a healthy pace. And there is mounting evidence that the nation’s manufacturing sector is coming out of the doldrums as businesses increase their investment in capital goods.

Employment in the U.S. continued along its path of gains last month, with a Labor Department report released Friday showing 227,000 nonfarm jobs were added in January. The number of jobs added during the month is the highest since September. Trucking, however, trimmed its employment rolls.

The number of overall job additions was far more than the 175,000 forecast by a poll of analysts. At the same time, the unemployment rate inched up to 4.8% as more people began looking for work.

As for trucking there were 1,400 job losses last month in the for-hire sector, contributing to an overall 4,000-job loss in the wider transportation and warehousing sector. However, unlike trucking, the warehousing and storage niche added 9,400 jobs during the month, while 7,400 jobs were cut from the couriers and messengers category.

Outside of transportation, the overall gain largely reflected construction employment soaring 36,000 after a 2,000 gain in December, while manufacturing employment rose a modest 5,000 compared to the 11,000 gain the previous month.

Overall wage growth in January moderated to an average of 3 cents per hour compared to double that number in December. However, over the past 12 months average wages are up 2.5%, only slightly higher than the level of retail inflation, and down from the December 12-month rate of a 2.8% increase.

“Today’s report indicates continued robust increases in employment going into 2017,” said Paul Ferley, assistant chief economist at RBC Economics. “Such bodes well for overall gross domestic product growth to continue at an above-potential rate as prevailed over the second half of 2016.”

Manufacturing Continues Improving, Construction Eases But Still Strong

A separate and full report on factory orders and shipments in December from the Commerce Department showed increases in both categories, while an indicator of business investment also moved higher.

New orders for manufactured goods rebounded somewhat by 1.3%, far better than analysts’ expectations, following a revised 2.3% November decline. Shipments of manufactured goods increased 2.2%, the ninth gain out of the past 10 months and the largest gain since December 2010.

For all of 2016, factory orders fell 1.4% from the year before, much less than the decline of 6.3% in 2015. Shipments were down by 1.5%.

New orders of manufactured durable goods, items designed to last three years or more, fell 0.5% in December, slightly more than in an earlier, preliminary report. Shipments of them increased 1.4%, virtually unchanged from the preliminary reading.

Durable goods orders for all of last year fell 0.3% from 2015 while shipments declined 0.5%.

More importantly, orders for nondefense capital goods minus aircraft, a proxy of business investment, increased 0.7% in December, down from a preliminary reading of an 0.8% hike. That followed a November jump of 1.7% and a 0.5% rise in October. Shipments of these items held on to the originally reported 1% December gain.

This is a hopeful sign the manufacturing industry is starting to recover, including in the energy sector, which was hammered the past two years by lower oil prices.

There is already some evidence this is happening, with two reports released on Wednesday that showed manufacturing in January turned in its strongest performance in the past couple of years.

“A variety of factors suggest that after a period of weakness, conditions are ripe for U.S. business investment to accelerate,” said TD Economics between the two manufacturing reports. “These include better corporate profits, improved business sentiment and leading indicators from the construction sector."

All of this follows a Commerce Department report showing construction spending in the U.S. ended 2016 on a soft note, but still managed to turn in an impressive showing for the year.

The value of construction put in place fell 0.2% in December from November’s revised level. However, when the month is compared to December 2015, it increased 4.2%, and gained 4.5% in all 2016 versus 2015.

The overall December decline came as there were improvements in residential building while public construction fell.

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