January U.S. Employment

Another Quirky Jobs Report Out of Sync with Other Data, U. Rate Down to 6.6 Percent

  • The January Payroll Employment Survey showed another weaker-than-expected gain of 113,000 jobs.
  • The Unemployment Rate for January fell to 6.6 percent with a surge in household employment.
  • Bad weather has been a factor this winter, but the payroll data is quirky beyond weather effects.

Payroll employment expanded by 113,000 jobs in January, below expectations. This follows on the heels of a weak December report, when only 75,000 jobs were added. The unemployment rate fell to 6.6 percent in January, just above the Federal Reserve’s 6.5 percent “threshold” for raising the fed funds rate. At this point, the Fed’s concept of an unemployment rate threshold has no value as a forward guidance tool. We expect the Fed to maintain its near-zero fed funds rate policy well into 2015. The next meeting of the FOMC is March 18/19. So they will also have the February employment data, due out March 7, as well as other data, to look at before they deliberate on additional tapering of QE. As long as the February data is consistent with moderate expansion, the FOMC will continue to taper QE in $10 billion increments. Consistently soft data between now and mid-March could cause the Fed to take a breather from tapering, waiting for firmer data by the end of April. Other employment related metrics look stronger than the official Bureau of Labor Statistics payroll data. The BLS’s household employment series, which feeds into the unemployment rate calculation, showed a very strong gain of 638,000 jobs in January. Unemployment insurance claims have not elevated. Other private surveys, including ADP and the ISM indexes, show consistently solid job growth. The average workweek stayed constant in January at 34.4 hours, after ticking down a tenth in December. 

According to the BLS payroll data, softer job growth this winter can be blamed only partially on the weather. Construction employment actually increased strongly, by 48,000 jobs in January. Manufacturing added 21,000 workers. Professional and business added 36,000. So far it looks like a good report. However, retail trade dropped 12,900 workers. Education and healthcare, which is normally a big adder, dropped 6,000 workers in January. Government employment shrunk by 29,000. If education/healthcare had added 30,000 and government was a net zero for January, then the January payroll number would have been +178,000, near the 2013 average. The payroll jobs data for December and January look very quirky and out of sync with other metrics. I expect monthly payroll job growth to reset to about 180,000-190,000 per month this year. However, if it does not do that soon (within the next two months), then my “cautiously optimistic” economic outlook for 2014 will have to be moderated.

Market Reaction: U.S. equity markets opened with gains but have moderated. Treasury bond yields are down at the long end. The 10-Year T-bond yield is 2.67 percent. NYMEX crude is up to $98.19/barrel.

Economic Alert 020714

For a PDF version of this Comerica Economic Alert click here: Employment 020714.



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