Strong Jobs Growth Surprises Nearly Everyone

The economy in the United States is generating new jobs at a much faster pace than almost anyone expected. The latest evidence is the Bureau of Labor Statistics report for jobs growth for January, during which nonfarm payroll employment jumped by 243,000, with broad-based gains across all sectors except information and government. Most economists expected gains in the 150,000 range. The BLS also said more jobs were added in November and December than previously reported.

Also surprising was the continuing drop in the unemployment rate to 8.3%. To get a sense of just how surprised economists are by this number, which began falling in November, consider the current consensus forecasts on the unemployment rate from Blue Chip Economic Indicators. In the early January survey, the economists predicted an average unemployment rate of 8.7% for all of 2012. They did not think the unemployment rate would fall to 8.3% until the second quarter of ’13.

While some observers tie the drop to long-term unemployed workers leaving the job hunt, in fact the number of those “marginally attached” to the workforce or “discouraged” was no higher in January this year than in January ’11. Still 12.8 million Americans remain unemployed with 43% of them unemployed for more than 27 weeks. Another 8.2 million are under-employed.

Both manufacturing and construction posted strong gains in January, the latter helped in both December and January by mild winter weather. Professional and business services added 70,000 net jobs, healthcare grew by nearly 30,000, and leisure and hospitality added 44,000 new jobs.

The improving employment outlook helped push the Thomson/Reuters University of Michigan Consumer Sentiment Index up nearly five points in the final January reading, to 75. The index has gained a third of its value since August, when the measure plummeted following the debt ceiling debacle. But the Conference Board’s Consumer Confidence Index fell in January.