Is Today's Employment Report a "Game Changer?"

February 3, 2012 05:15 AM

Today's Employment report from the Labor Department has economic and potential political ramifications, with some noting the report is a "game changer" while others aren't that confident.

First, the numbers: January nonfarm payrolls advanced 243,000 with continued strong private-sector job growth as government jobs declined again by 14,000 -- primarily in state and local governments.

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Unemployment rate: Generated by a separate survey, the unemployment rate fell to 8.3%, down 0.2% from December's 8.5%. It's the lowest unemployment percentage since Feb. 2009. The number of unemployed persons declined to 12.8 million in January.

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After accounting for the annual adjustments to the population controls, the employment-population ratio (58.5%) rose in January, while the civilian labor force participation rate held at 63.7%.

Workweek: The average workweek for all employees on private nonfarm payrolls was unchanged in January. The manufacturing workweek increased by 0.3 hour to 40.9 hours, and factory overtime increased by 0.1 hour to 3.4 hours. The average workweek for production and nonsupervisory employees on private nonfarm payrolls edged up by 0.1 hour to 33.8 hours.

Even though some point out the Labor Dept. noted things were unchanged vs. December in terms of the workweek, it is still an increase. As one observer noted, a one-tenth increase in average weekly hours worked is equal to an additional 384,000 jobs at the current average, and 330,000 jobs using a "full-time" 40-hour workweek.

Hourly earnings: In January, average hourly earnings for all employees on private nonfarm payrolls rose by 4 cents, or 0.2%, to $23.29. Over the past 12 months, average hourly earnings have increased by 1.9%.

Revisions: The change in total nonfarm payroll employment for November was revised from +100,000 to +157,000, and the change for December was revised from +200,000 to +203,000. Monthly revisions result from additional sample reports and the monthly recalculation of seasonal factors. The annual benchmark process also contributed to these revisions.

Adjustments to the household survey: Effective with data for January 2012, updated population estimates which reflect the results of Census 2010 have been used in the household survey. Population estimates for the household survey are developed by the U.S. Census Bureau. Each year, the Census Bureau updates the estimates to reflect new information and assumptions about the growth of the population during the decade. The change in population reflected in the new estimates results from the introduction of the Census 2010 count as the new population base, adjustments for net international migration, updated vital statistics and other information, and some methodological changes in the estimation process. The vast majority of the population change, however, is due to the change in base population from Census 2000 to Census 2010.

The impacts: This is a "game changer" according to Allen Sinai, Chief Global Economist with Decision Economics, Inc. He reasons the data is that significant as it signals the "picture of the labor market this month and last… is of a turn up in the labor market from a very depressed state."

Wells Fargo Financial assessed the report similarly, but noted, "All of this suggests that the U.S. economy has sustained growth in a broad number of sectors. Our challenge remains that many workers are structurally unemployed and unable to jump on the growth train."

What will it mean for the Fed? A stay-put policy is expected to unfold as the unemployment rate in this morning's report is already at the level that the Fed looked for at the end of this year. Now the question for the Fed will become what to do with their portfolio of assets.

The issue: Will the Fed opt to reinvest the maturing securities and therefore keep their portfolio largely unchanged in terms of size? Expectations are that will be the case -- no change.

Another issue: Will the Fed expand the portfolio - undertake another round of quantitative easing? The expectation now turns to no.

Election impact: With the unemployment rate already at levels expected post-election, this potentially bolsters the re-election odds for President Obama. The White House pointed to the report as more evidence that the economy is continuing to recover, and used it to push the agenda Obama detailed in his State of the Union address as well as an extension of the payroll tax cut and unemployment benefits through the end of the year. "It is critical that we continue the economic policies that are helping us to dig our way out of the deep hole that was caused by the recession that began at the end of 2007," Alan Krueger, chairman of the president's Council of Economic Advisers, wrote in a blog post Friday morning. Krueger called the jobs report "an encouraging sign. Nonetheless, we need faster growth to put more Americans back to work," he said.

Setting the tone for Republicans' mixed reaction to the employment news, GOP presidential hopeful Mitt Romney said, "We welcome the fact that jobs were created and unemployment declined. Unfortunately, these numbers cannot hide the fact that President Obama's policies have prevented a true economic recovery. We can do better."

The bottom line: This is a significant batch of data for the U.S. economy and one that paints a picture which will certainly bolster expectations for the U.S. economy and even the global economy.

The report, according to Sinai, signals increased incomes in the short and medium-term which in turn should support consumer spending and consumer sentiment, which should increase the sentiment for businesses who then will create more jobs and hire more workers, and that increase in jobs will lead to lower unemployment and that should help the U.S. economy and global economy. In short, a game changer in what has been a long slog for the U.S. economy.

A challenge, however, remains in that many workers are structurally unemployed and unable to jump on the growth train.

One naysayer of this being a gamer-changer report said, "President Obama would be making a mistake if he touted this report too much. Numbers were better than expected but the Labor Dept. says that the amount of job loss in January due to weather was the lowest ever recorded. There will be a payback. Meanwhile at the margin conditions are worsening in both China and Europe."

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