Mixed Messages in the Employment Data

It is generally wise to take individual jobs reports with a grain of salt. The data, as the economists say, are “noisy” - imperfect estimates subject to revision. But the jobs report for January might need an extra few shakes of the shaker.

For one, data from the two separate surveys used in the report paint two unusually different pictures. The less-reliable household survey shows employment shooting up by 616,000 positions, and the employment-population ratio increasing by two-tenths of a percentage point. That’s very good news: It shows a stronger economy leading workers back into the labor force.

But the more-reliable establishment survey shows employment growing by a measly 113,000 jobs. The Bureau of Labor Statistics did not adjust that very weak December payroll jobs number much either, as some economists expected it would.

Compounding the uncertainty is the fact that the weather might be messing with the December and January numbers. The polar vortex, the heavy snow, the freezing cold, the south icing over - all of that tends to force workers to stay home, and suppresses business activity more generally. (Who buys a car in a blizzard?)

There are further sources of uncertainty, too. This jobs report contains some annual statistical revisions, for instance. “Had last year’s January seasonal factor been used this year, private payrolls would have risen by 265,000,” noted Ian Shepherdson of Pantheon Macroeconomics.

It has left economists scratching their heads - and looking towards next month’s numbers.

“The January report far from clarifies muddy waters,” said Doug Holtz-Eakin, a former director of the Congressional Budget Office, in his analysis of the numbers. “The question was whether December job growth was a weather-related aberration that disguised modest acceleration. The only bottom line is that the answer is no. There is no catastrophe, but no evidence of acceleration either.”

But one thing is for sure, and this report underscores it: the unemployment rate itself has become a less and less reliable indicator. The sluggish economy has discouraged hundreds of thousands of workers from seeking a job, and the retirement of the baby boomers has shrunken the labor force, too. That means that the decline in the unemployment rate is sharper than the growing employment figures suggest it should be.