Dr. Ken Mayland | ClearView Economics, LLC
1. The Numbers
The rise of nonfarm payrolls again fell well short of expectations. The January increase amounted to just 113k (compared to a consensus estimate of 180k). The dismal growth of December payrolls, of 73k, was revised only 1k higher. The November increase of establishment employment, however, was restated upwards by 33k (to +274k). The January unemployment rate dipped another 0.1%, to 6.6%, and this was a “higher quality” decline than seen in the past (see the arithmetic below, #3).
2. When “Better” is Not Good Enough
The January increase in payrolls was better than that seen in December, but still short of expectations, and far short of where it really should be, cyclically (perhaps +450k/month). I’ll grant that there are some weather effects in these numbers, and that could continue to run through the February data, too. (Next week is the crucial survey week.) But after taking weather into effect, the conclusion must be that there is something seriously amiss with this economy. Not enough policymakers are doing enough soul-searching to come up with the causes, causes that are destroying dreams of future prosperity, creating personal economic tragedies, and ruining retirements.
3. Adventure Time!
It always seems to be an adventure de-constructing the unemployment rate. There apparently was a “legitimate” (or “honest”) January reduction in unemployment of 117k. What makes this a believable figure is that 331k discouraged workers came back into the labor force, and with a natural population rise, caused the total labor force of either working or actively looking for work persons to increase by 499k. (This resulted in a 0.2 percentage point increase in the labor force participation rate, to 63.0%.) Employment, as measured in this Household Survey, swelled 616k, a “top-4” rise for the past six years.
4. Good for “Goods,” Bad for “Services”
Construction employment jumped 48k and manufacturers added 21k workers to its payrolls. These are pretty solid gains. But information industry jobs went unchanged, retailers trimmed their ranks by 13k, government payrolls were cut 29k (reductions at all levels), and the normally dependable health care world clipped their payrolls by 400 positions.
The number of persons working part-time for economic reasons (slack work, or could only find part-time work) fell by about a half-million persons, and the number in January 2014 was well below its level of January 2013. Those working part-time for noneconomic reasons (due to child care or other family needs, school/training scheduling, etc.) rose about 430k. To date, there is no macro case for ObamaCare causing full-time positions to be replaced by part-time jobs.
6. In the Weeds
For the record, this employment report encompasses some technical changes, updating of seasonal adjustments, and benchmark revisions. The population estimates that underlie the Household Survey were updated. Strictly speaking, this makes Household Survey figures for 2014 not exactly comparable to 2013’s figures-which happens every year-but a detailed analysis of December-January under both set of assumptions suggests that the differences are tiny. The benchmark revisions lifted March 2013 payrolls by 369k, but mostly due a reclassification of a Household Survey employment category not previously included into the Establishment count. The month-to-month changes in payrolls for all of 2013 were raised a net 136k, for an average of +11k per month-a very minor change.
7. Tie to Tapering
While the stock futures market initially sold off significantly with the release of this news, it nevertheless opened positively. Bond yields dropped, but came back some. The dollar was “flattish,” as are the prices of precious metal (at this point in time). Despite the big miss, the markets appear to be yawning. The Fed’s policy course right now is “tapering.” There is not enough adverse evidence at this point in time to diverge from this policy course; to do so could send the wrong message.
Heads-up: next week’s major economic news item will be released on Thursday and Friday. Until then…