The Labor Market Refuses to be Shut Down

Despite the government shutdown, the US added 304,000 jobs in January

Robert Spendlove and Joseph Mayans Feb 1, 2019

The partial-government shutdown proved to be little match for the US labor market. In January, employers added a stellar 304,000 jobs, far better than the estimated 160,000 that economists were predicting. While the robust pace of hiring was not affected by the shutdown, the unemployment rate did rise to 4 percent due to furloughed federal workers being counted as unemployed. Annual wage growth which was revised up to 3.3 percent in December, declined slightly to 3.2 percent in January. The labor force participation rate, which measures those working or looking for work, rose to 63.2 percent from 63.1, touching the highest level since 2013.

labor graph jan 2019 jobs report

Top Takeaways from the Report

Shutdown, what shutdown?

Despite concerns that the partial-government shutdown would negatively impact hiring, the labor market proved extremely strong in January, adding a far-better-than-expected 304,000 jobs. This marks the 100th consecutive month of employment creation in the US. Included in this month’s report were revisions for November and December. In November, employment gains were revised up from 176,000 to 196,000; and in December, employment gains were revised down from 312,000 to 222,000. Despite the big revision down in December, the labor market has still added an average of 241,000 jobs over the last three months.

In reporting the numbers for January, the Bureau of Labor Statistics (BLS) provided some clarification on how the government shutdown affected the data. The overall number of jobs created was not impacted, as federal agencies counted their employees as employed if they worked or were paid, or will be paid, at any time during the shutdown, this includes furloughed workers. Federal contractors, however, who did not work or receive pay were not counted as employed. In a separate measure, Federal employees counted themselves as unemployed (which is why the unemployment rate rose from 3.9 percent to 4 percent) if they were not working when surveyed by the BLS.

The Federal Reserve’s recent change of policy and tone might have been premature

At its latest FOMC meeting, the Fed made an abrupt about-face in terms of policy and tone. Citing a number of “crosscurrents” emanating from a slowing global economy and the government shutdown, the Fed indicated that it might be done raising rates and even opened the possibility that it would adjust its balance sheet program as needed. This was in stark contrast to its previous meeting in December, where it pointed to the possibility of two rate increases in 2019.

Given the very strong labor market witnessed over the past several months and the overall improvement in wage gains, the Fed’s policy change might have been premature. The Fed will have to be very careful going forward to leave itself some breathing room if it needs to change policy quickly, which could happen if inflation rises. While improvement in wage growth has not yet put pressure on overall inflation, it very well could if the labor market continues to perform so well.

Growth by Select Industry

  • Leisure and Hospitality added the largest number of jobs in January of 74,000. The majority of job gains came from food services and drinking places, which added 36,600 jobs.
  • The construction sector boomed in January, adding 52,000 jobs. Only once since 2015 has the sector added more jobs, and that was 73,000 in February of 2018.
  • The manufacturing sector continues to experience employment creation with 13,000 jobs added in January. The sector has added 261,000 jobs over the last year.
  • Even with the government shutdown, federal employment rose by 1,000.

The Bottom Line

The US labor market has proven to be extremely resilient. Even with a government shutdown, employers added 304,000 jobs and capped off 100 consecutive months of job creation. Though Fed officials have pointed toward fewer rate hikes in 2019, solid wage growth and strong job creation will keep them on their toes.


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