Non-Farm Payrolls Below Estimates, Unemployment Falls, Confidence Bounces, Manufacturing Expanding, Construction Declines

- The Change in Non-farm Payrolls for January was -17K versus estimates of 70K and an upwardly revised +82K in December.

- The Unemployment Rate for January fell to 4.9% versus estimates of 5.0% and 5.0% in December.

- Average Hourly Earnings for January rose .2% versus estimates of a .3% gain and a .4% rise in December.

- Final Univ. of Mich. Consumer Confidence for January fell to 78.4 versus estimates of 79.0 and a prior estimate of 80.5.

- ISM Manufacturing for January rose to 50.7 versus estimates of 47.3 and a reading of 48.4 in December.

- ISM Prices Paid for January rose to 76.0 versus estimates of 68.0 and a reading of 68.0 in December.

- Construction Spending for December fell 1.1% versus estimates of a .5% decline and a .4% decline in November.

BOTTOM LINE: Non-farm payrolls unexpectedly declined for the first time in more than four years, increasing the odds the Federal Reserve will cut rates another half point next month, Bloomberg reported. However, the unemployment rate unexpectedly fell back to 4.9% from 5.0% the prior month. Moreover, December’s job gains were revised higher from +18,000 to +82,000. Service industries, which include banks, insurance companies, restaurants and retailers, actually added 34,000 workers in January. Government payrolls shrank by 18,000, the first decrease in six months and builders trimmed payrolls by 27,000. Wages rose a healthy 3.7% from year ago levels. Today’s report runs counter to the ADP Employer Services report released Wednesday that showed a 130,000 gain in jobs during January. I expect January non-farm payrolls to be revised higher and a bounce-back in job creation in February.

Confidence among US consumers rose in January from a month earlier, the first increase in six months, as Americans’ sentiment about their economic prospects improved, Bloomberg reported. The Expectations component of the index rose to 68.1 from 65.5 in December. The Current Conditions component, which reflects Americans’ perceptions of their financial situation and whether it is a good time to buy big-ticket items such as cars, rose to 94.4 from 91.0 in December. I expect Consumer Confidence to rise again this month on less economic pessimism, lower interest rates, lower energy prices and a rising stock market.

Manufacturing in the US unexpectedly expanded in January, showing business investment is rising, Bloomberg reported. International sales and a backlog of orders may continue to help support manufacturing. The Employment component fell to 47.1 from 48.7 the prior month. The Prices Paid component rose to 76 from 68 in December. The New Orders component rose to 49.5 from 46.9 the prior month. The Production gauge jumped to 55.2 from 48.6 prior. The Inventory component rose to 49.1 from 45.4. The Export Orders component surged to 58.5 from 52.5 in January. I continue to expect manufacturing to help boost overall US growth over the intermediate-term as record low inventories are rebuilt and exports continue to boom.

Spending on US building projects fell more than forecasts in December, reflecting homebuilders’ attempts to pare down inventories, Bloomberg reported. Private residential construction fell 18% for all of 2007. Non-residential construction was unch. for the month and jumped 16% for the year. Private non-residential construction rose 1.3%, reflecting increases in factory and communications facilities. Overall construction activity will remain muted over the intermediate-term as homebuilders continue to bring down inventories.