Market Insider

January jobs report may have gotten an extra boost from the weather

Key Points
  • Economists expect to see 158,000 nonfarm payrolls added in January, up from 145,000 in December.
  • If the number is stronger than expected, the labor market could have benefited from warmer-than-usual weather, allowing construction workers and others to work outdoors at a normally very cold time.
  • The government's report also will include revisions that will show an unusually high reduction of 500,000 jobs over the period from March, 2018 through March, 2019.
  • The job revision, the biggest since the financial crisis, is largely reflecting reductions in leisure and entertainment categories as well a sharp reduction in retail, reflecting the shift from stores to online spending.
Workers carry a wall frame for a home under construction at a K. Hovnanian Homes development in Plano, Illinois, U.S., on Wednesday, May 15, 2019.
Daniel Acker / Bloomberg / Getty Images

Economists forecast a slight pickup in job growth in January over December, but warmer weather could have been a positive factor that could have encouraged more hiring than expected in construction and some other industries.

Economists expect 158,000 nonfarm payrolls were added in January, up from 145,000 in December, according to Dow Jones. Unemployment is expected to hold steady at 3.5%, while average hourly wages were expected to grow by 0.3%.

About 500,000 jobs will be cut from March 2018 through March 2019 as part of benchmark revisions. That would wipe out about 40,000 jobs a month and is the largest reversal in that number since the financial crisis. Sectors with the most jobs lost are retail and leisure and hospitality.

"There could also be adjustments to job growth later in 2019 as a result of the benchmark revisions, but we do not expect that those changes will be large enough to change our view that the labor market remains strong overall," according to Citigroup economists. They do note that the stronger 220,000 monthly pace of job growth originally reported in 2018 will be lower, after the revisions.

Economists said the ADP's stronger-than-expected 291,000 jobs for January, reported earlier this week, suggests that there was more hiring due to milder weather. That could also be a factor in the government report's, expected Friday at 8:30 a.m. ET. But the government's monthly employment report does not always reflect the same outcome as ADP.

January 2020 was the fifth-warmest on record, though it was also a month with a lot of precipitation, according to NOAA.

"ADP had a lot of weather effects in December too, and it didn't show up in the official data," said Diane Swonk, chief economist at Grant Thornton. "I'm looking for 170,000. If we do get a big surprise, it will be weather."

Swonk said that could mean more construction workers than expected and more workers added in the leisure and hospitality sector.

"Rates are down. Housing is booming," said Joseph LaVorgna, chief economist Americas at Natixis. "Weather very well may have been a factor in lifting construction. The fundamentals are all supportive of housing. The weather may be pulling some activity forward."

LaVorgna said job growth should be a strong 200,000, and he does not expect much of an impact from Boeing's production cutback due to the 737 MAX. He noted that weekly unemployment claims continue to be low and are not reflecting a wave of layoffs.

Plus, the recent pickup in ISM manufacturing, which now shows expansion again, means more jobs should have been added jobs in manufacturing, the category that would be hit by Boeing, so it might be difficult to find the impact.

NatWest Markets economists expect to see 165,000 jobs added in January. Kevin Cummins, U.S. economist for NatWest, said it would not be surprising to ultimately see the rest of 2019 payroll numbers revised lower.

"Typically, when you do see weakening in the benchmark, it is often times at turning points ... if the economy is losing momentum, which we think is going to be the case," he said.

In a preliminary release, the government said it now expects retail jobs to be reduced by more than 146,000 in the year after March, 2018. Swonk said the number is reflecting the shift to online shopping, and the shutdown of retail stores, not captured when the government initially reported its jobs data.

"It's basically a lot more realistic. ... The bulk of it will be in the fourth quarter and the beginning of the first quarter 2019, but they'll do it over the course of the entire year," Swonk said. "It's just more consistent in terms of what we've seen. Getting the kind of jobs gains we were getting, you would have thought there would be even more reductions in the unemployment rate. This squares that."