Why the jobs report is actually good news

After five weeks of disappointing market outcomes, the world could use some good news. While it may not be obvious on the surface, the January U.S. job report could provide a lift to flagging financial spirits.

Construction workers raise wood framing as they build homes in a new housing development in Richmond, Calif.
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Construction workers raise wood framing as they build homes in a new housing development in Richmond, Calif.

Establishments added 151,000 jobs last month. The gains are smaller than we had seen in recent reports — and smaller than expected — but there was some good news in there.

Construction payrolls grew by 30,000 less in January than they did in December. That may seem like a negative on the surface but weather was mild in December, which likely confused the seasonal adjustments applied to the sector. Adjusting for this, January's progress is closer to December's.

Further, U.S. retirement trends suggest that it only takes payroll gains of 80,000 per month to keep the unemployment rate stable. Our conception of what constitutes a "good" job report needs to factor this in. By that measure, January's outcome is hardly disappointing.

Wages are a clear highlight of today's report. Stuck in the 2-percent range for several years, gains have been improving steadily since the middle of last year. More pay means more consumption, which supports continued expansion. And rising labor costs provide the Federal Reserve an increment of additional confidence that their 2-percent inflation target can be reached in the medium term.

The unemployment rate dipped below 5 percent for the first time since early 2008. The household survey showed very strong employment gains and rising labor force participation, which is the desired combination.

Today's update is not likely to change the trajectory of U.S. monetary policy. International uncertainty has clouded the outlook and taken a March interest-rate increase off the table. But continued gains in jobs and wages should reduce the likelihood of a worst-case outcome and allow the Federal Reserve to continue normalizing conditions later on this year.

Commentary by Carl Tannenbaum, the chief economist for Northern Trust, an investment-management firm. Prior to joining Northern Trust, Tannenbaum led a team at the Federal Reserve Bank of Chicago and served as the head of the entire Federal Reserve System's risk group in Washington for a year, working closely with Federal Reserve System governors and senior officials.

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