US: What to expect from the January jobs report - ING

James Knightley, the Chief International Economist at ING, notes that U.S. payrolls growth was choppy through the second half of 2019, with the strike by General Motors staff contributing significantly to the volatility.

"That story has fully unwound, but the next issue is Boeing given it has stopped production of the 737 Max aircraft. With 600 suppliers impacted by the decision, we strongly suspect there will be a renewed drop in manufacturing employment. The January ISM manufacturing employment component remained in contraction territory at levels historically consistent with 15,000 of job losses. Note too that the January Beige Book published by the Federal Reserve reported “job cuts or reduced hiring among manufacturers, and there were scattered reports of job cuts in the transportation and energy sectors.”

Construction job gains should offset this. The plunge in mortgage rates has reignited interest in the housing market with the National Association of Home Builders sentiment index at 20-year highs. Warmer-than-usual January weather may also mean that there hasn’t been the usual building halt and associated temporary worker lay-offs, adding to upside risk for jobs in this sector (remember it is seasonally adjusted). With housing starts and building permits on the rise and construction spending more broadly showing decent gains, this sector is likely to be a key driver of employment growth over the next six months.

Service sector employment growth has been gradually softening from decent levels, reflecting the slowing of activity more broadly in the economy. We also caution that 20% of all the jobs created in the US over the past 18 months or so have come from the leisure and hospitality industries, which is generally viewed as being a low skill, low wage, low security sector. We see little reason to expect any meaningful resurgence in service sector employment growth this month, although hiring for the Census is likely to accelerate in coming months. These are of course only going to be temporary jobs.

Taking this altogether we look for payrolls growth of 150,000 versus the 160,000 consensus forecast. 2019 saw on average payrolls growth 176,000 per month while 2018 experienced average monthly gains of 223,000."