Employment
Nonfarm payroll employment grew by just 36,000 in January, much weaker than expected. Data for December and November were revised up by 70,000. Total private employment increased by 50,000 in January, the slowest gain since May. The unemployment rate fell from 9.4% in December to 9.0% in January, due in part to continued declines in the labor force participation rate. Average weekly hours worked declined to 34.2 hours in January, and average hourly earnings for all employees increased by $0.08 to $22.86. Despite the unemployment rate declining 0.8 points in the past two months, the pace of job creation remains far too weak.

Personal Income
Personal income growth increased in December by a healthy 0.4%, supported by strong spending, growth in income, and savings. Disposable income increased at the same pace following growth of 0.3% in November. Spending rose 0.7%, adding to the gains of October and November. The saving rate fell to 5.3%, its lowest level since March, but remains well above the levels prior to the recession. The price deflator for consumption rose 0.3% while core prices were unchanged. As incomes continue to grow, we should see continued consumption and a gradual reduction in the savings rate.

ISM Manufacturing
The Institute for Supply Management's (ISM) manufacturing index increased in January to 60.8, from 58.5 in December. January’s rate was the highest since May 2004. The upturn in January follows strong growth in 2010. In the fourth quarter, the ISM averaged 57.3, the highest level since 2004. In January, 14 of 18 manufacturing industries reported growth, and most components of the index are pointing to further gains. The manufacturing sector continues to perform well but will depend on strengthening consumer demand to expand further. This report also pointed to a lurking threat on the horizon, namely rising commodity prices, which could be a drag on growth going forward.