Private-sector employers added 205,000 jobs in January

Private-sector employers added a solid 205,000 in January, as the labor market sustains steady gains despite the turbulent global economy.

Jobs growth eclipsed 200,000 for the third straight month behind a 10-year high in the pace of hiring in financial services and a strong month for mid-sized firms, according to the ADP National Employment Report released on Wednesday.

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The January report came up short of the 267,000 jobs added in December.

Mark Zandi, chief economist of Moody’s Analytics, said that the commotion across global financial markets isn't slowing down hiring by U.S. firms.

"All this turmoil in financial markets hasn't done any damage yet, that I can see, to the labor market" Zandi said on a call with the media.

"The labor market is holding tough, which is a very good sign."

The ADP figures come ahead of the government’s January report that is set for release on Friday with the expectation that between 180,000 and 200,000 jobs were added.

Most of the job losses and weaker hiring is concentrated in the energy and manufacturing sectors that have been affected by falling oil prices and the rising value of the dollar, which makes U.S.-made products more expensive abroad.

Manufacturing added no jobs last month.

Despite the weakness in those two sectors, Zandi said the U.S. economy remains on track to reach full employment by the summer.

The financial services sector, which has made a slow recovery from the 2008 crisis, added 19,000 jobs last month the most since March 2006.

And mid-sized firms added 82,000 jobs up from December’s 77,000.

But large firms slowed their hiring, adding only 44,000 jobs last month, about half of the 88,000 in December.

"One of the main reasons for lower overall employment gains in January was the drop off in jobs added at the largest companies compared to December,” said Ahu Yildirmaz, vice president and head of the ADP Research Institute.

“These businesses are more sensitive to current economic conditions than small and mid-sized companies,” Yildirmaz said.

During the past year, businesses with fewer than 500 employees have created nearly 80 percent of the jobs, he said. 

Construction hiring remained consistent, adding about 21,000 jobs, which is in line with the average monthly jobs gained during 2015.

Service-providing employment rose by 192,000 jobs in January, down from 237,000 in December.

While the labor market remains strong, Zandi expressed concerns about persistently low productivity — which measures the average production of workers — that could sap his optimism about the nation's economic growth. 

The looming concern is that the economy will reach full employment by the summer but productivity will remain weak, a factor that weighs on wages and economic growth.

In the past five years, productivity has increased at an anemic 0.5 percent annual rate, which is much slower than the 2 percent average posted since World War II, Zandi said.

Productivity figures for the fourth quarter will be released on Thursday with expectations of minus-2.1 percent. 

The sharp recoil in productivity partially explains the gap between the steady growth in the labor market and the slow down in the economic expansion, Zandi said. 

The economy grew at a weak 0.7 percent annual pace in the October-December quarter and Zandi said that the second estimate could fall to zero. 

While he said there are some measurement issues with the growth figure, including an inability to fully capture contributions from the tech sector — productivity is a serious issue that must be watched closely in the coming months, he said.

Zandi argues that there are temporary factors holding back productivity such as the financial sector's adjustments to new regulations like  higher capital requirements.

He noted that productivity in non-financial firms is closer to the historic average.

But he acknowledged that there are other economists who think the problem is potentially structural and longer lasting.

Mobility is a key factor to watch as workers find jobs that better synch up with their abilities, Zandi said.

"If mobility is picking up we'll get better matching of jobs and it should help productivity," he said. 

"If it doesn't, optimism won't come to pass."