As expected, the Federal Reserve Open Market Committee kept the federal funds target rate at the 2.25% - 2.5% range in their January meeting, but also added a statement to their announcement that they would be prepared to adjust the unwinding of their balance sheet in addition to rate changes if future economic conditions warranted a more accommodative monetary policy. In addition the wording of their statement downgraded economic activity from rising at a “strong” rate to rising at a “solid” rate, and their statement on future rate increases was modified to say that the Committee would be “patient” in their determination of future rate adjustments “in light of global economic and financial developments and muted inflation pressures”.

The partial federal government shutdown helped to push the unemployment rate up by +0.1% to 4.0% in January despite the addition of 304,000 new jobs during the month. Job gains for November were revised upward from +176,000 to +196,000, and revised downward for December from +312,000 to +222,000, dropping employment gains by 70,000 for those two months and bringing the 3 month average of job gains to +241,000 jobs/month. In January the most significant job gains were for leisure and hospitality (+74,000), construction (+52,000), and health care (+42,000). Average hourly earnings were up +$0.03 to $27.56/hour, with wages increasing +$0.85/year (+3.2%). The more comprehensive U6 unemployment rate, which includes marginally attached, underemployed and discouraged workers, shot up +0.5% to 8.1%.

The manufacturing index from the Institute of Supply Management rose from an upwardly revised 54.3 in December to 56.6 in January. The overall economy reading showed faster growth, continuing a 117 month trend, with the manufacturing sector also showing faster growth for the 29th month. The production component was up +6.4 to 60.4, followed by the new orders component, up +6.0 to 58.2, but prices decreased, with the index dropping -5.3 to 49.6 and supplier deliveries slowed by -2.8 to 56.2. Comments from participants indicated improving demand and consumption, but growth for exports slowed and some participants indicated concerns about a future slowdown, squeezed margins, and the effects of the government shutdown.