The January Employment Report was odd. Nonfarm payrolls rose by a disappointing 36,000, but weather and seasonal adjustment added a considerable amount of uncertainty to the establishment survey data. The unemployment rate fell sharply (to 9.0%, from 9.4% in December and 9.8% in November). However, the household survey figures are suspect. The employment-population ratio, a better measure of the amount of slack in the labor market, has been little changed over the last year. Still, the report was consistent with a pickup in the pace of the economic recovery in the near term.

The establishment survey data showed a subpar gain in private-sector payrolls in January (+50,000). A drop in average weekly hours suggests that some of that softness may have been due to poor weather. However, manufacturing payrolls and factory hours rose, consistent with the inventory story that emerged from the 4Q10 GDP report (that is, leaner inventories suggest a pickup in the pace of production in the near term. State and local government shed another 12,000 jobs (-237,000 over the last 12 months), reflecting continued budget strains.

 

 

Once a year, the Bureau of Labor Statistics benchmarks the payroll figures to tax receipts. In October, the BLS estimated that this year’s revision would reduce that March 2010 level of payrolls by about 366,000. The actual revision was -411,000, largely reflecting a steeper rate of job losses into early 2010.

Note that seasonal adjustment in January is huge. Private sector payrolls fell by 2.40 million, a bit less than a year ago (when the economy shed 2.41 million jobs). Construction payrolls fell by 32,000 (-326,000 before seasonal adjustment). Retail added 28,000 (-574,000 before seasonal adjustment). Temp-help payrolls fell by 11,400 (-253,600 before adjustment). Clearly, one should take the adjusted figures with a grain of salt.

 

 

The household survey data were even more of a puzzle. This is a survey of around 60,000 households. It doesn’t generate good estimates of monthly changes in levels (employment, the number of unemployed). In fact, the BLS should simply stop reporting some of the details. For example, the number of unemployed was reported to have fallen by 622,000 in January, but that figure is absolutely meaningless. The household survey does yield reasonable estimates of rates (the unemployment rate, labor force participation), but there is a fair amount of noise month to month (note that prior to seasonal adjustment, the unemployment rate rose to 9.8% in January).

The employment-population ratio is a better measure of the amount of slack in the labor market. While this figure edged up in both December and January, it has been little changed over the last year and is more consistent with the moderate payroll trend reported in the establishment survey data.

You don’t need a weatherman to know which way the economic wind blows. Lower payroll taxes will boost disposable income in 1Q11, supporting consumer spending growth. Production should advance in response to lean inventories. The pace of the recovery should pick up, but it’s still unlikely to lead to dramatic improvement in the labor market this year.

 

(c) Ramond James

www.raymondjames.com