Good news could be on way this week with strong jobs report
This week brings the eagerly anticipated jobs report for January, which likely means the economy can put on its happy face again. The government said Friday the economy grew just 0.7% at an annual rate in the fourth quarter, but payroll gains have been outpacing GDP growth, and some analysts say they represent a better measure of the economy’s health. A full slate of economic news will also deliver reports on consumer spending and the manufacturing and service sectors.
Consumer spending generally has been solid this year but choppy in recent months. Low gas prices, strong job growth and reduced household debt have left Americans with more discretionary cash, but wage growth remains sluggish, making many consumers hesitant to splurge. A core measure of retail sales fell 0.3% in December, auguring sluggish consumption overall. Also, unseasonably warm weather likely meant fewer outlays for utilities, says Lewis Alexander, chief U.S. economist of Nomura. Economists expect the Commerce Department to report Monday that spending ticked up just 0.1% in December.
Manufacturing has been far more consistent, but not in a good way. Overseas weakness and a strong dollar have doused sales at U.S. factories. And the tumble in oil prices has led crude producers to sharply dial back drilling and orders for steel pipes and related materials. After three years of steady growth, the Institute for Supply Management’s index of factory activity has shown contraction for two straight months. Economists reckon ISM will report the sector shrank again in January. But RBC Capital Markets is more upbeat, saying regional manufacturing surveys suggest the activity level may have been unchanged. That, it said, “could send a powerful message that the worst of the manufacturing pain in the U.S. is coming to a close.”
The service sector, by contrast, has been relatively insulated from the global troubles and has benefited from strong domestic demand for retail, restaurant, health care, financial and other services. Economists expect ISM to announce Wednesday that its index of non-manufacturing activity remained firmly in expansion mode in January.
The healthy service economy has underpinned blockbuster job growth recently. Employers added 292,000 jobs in December and an average 284,000 the last three months of the year. That pace likely slowed in January but initial jobless claims, a gauge of layoffs, remain low and continued warm weather early in the month likely translated into another good showing. Alexander notes that the historic snowstorm that smacked the Northeast occurred after the Labor Department did its monthly survey and should not be a factor. As a result, economists expect Labor to report Friday that employers started off the year by adding a solid 200,000 jobs.