January Employment Fails to Meet Expectations

February 7, 2014 03:09 AM

Via a special arrangement with Informa Economics, Inc.

Data again surprises to the downside while jobless rate declines.

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US nonfarm payrolls data for January again provided a surprise to markets and Fed watchers.

Nonfarm payrolls: Up 113,000.

Expectation: Up 180,000.

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The US economy added 194,000 jobs per month in 2013, up from the prior month. But the job creation the past three months has slowed to a pace of just 154,000. 

Impact of annual revisions: The change to last year's numbers in part reflects the Labor Department's annual benchmark revision, which incorporates newly available tax records. From April 2012 to March 2013, the U.S. payrolls included 369,000 more jobs than previously believed. Much of that increase was due to the reclassification of certain private household workers that were previously not counted. 

After accounting for the annual adjustment to population controls, the civilian labor force rose by 499,000 in January, and the labor force participation rate edged up to 63.0 percent. That’s up from 62.8 percent the prior month but still near a 35-year low. 

Unemployment: Fell to 6.6 percent from 6.7 percent the prior month. 

Expectations: Unchanged at 6.7 percent. 

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Since October, the jobless rate has decreased by 0.6 percentage point.

Government employment fell by 29,000 with the federal government cutting 12,000 jobs. Some three-quarters of that total were due to cuts at the US Postal Service. Over the past year, federal government employment has fallen by 85,000, or 3 percent.

The number of long-term unemployed (those jobless for 27 weeks or more), at 3.6 million, declined by 232,000 in January. These individuals accounted for 35.8 percent of the unemployed. The number of long-term unemployed has declined by 1.1 million over the year.

Other highlights:

Average workweek: Unchanged at 34.4 hours.

Average hourly earnings: Up 5 cents to $24.21 per hour. Over the year, average hourly earnings have risen by 46 cents, or 1.9 percent.

Revisions to November and December: November revised up 33,000 to an increase of 274,000 (241,000 initially) and December was revised up 1,000 to a level of 75,000 (74,000 initially.

Comments: The weather that affected the December data does not appear to have impacted January as construction jobs actually increased during January. The less-than-expected payrolls side is in areas that should not have been impacted by weather.

The unemployment rate is also edging closer and closer to the 6.5 percent marker that the Fed has been talking about. But recall the Fed has also stressed that it expects to keep its highly accommodative monetary policy in place well past the time we hit that 6.5 percent level. Look for Fed officials to continue to point out the latter portion – interest rates will remain low.

Further, the unemployment rate still doesn’t seem to match the payroll data very well.

But the biggest discussion point coming out of this report is that we now have two months in a row of disappointing jobs data. This will present the first major test for Janet Yellen as the Federal Reserve Chair and for the rest of the Federal Open Market Committee. The panel has opted to taper their asset purchase program by $20 billion in two installments, putting the effort at $65 billion per month.

There are arguments on both sides – one that even though the data was disappointing it still signals an expansion in the US jobs market. The other view is that the slide in the increase could be enough for the Fed to halt its tapering efforts. Markets appear to be moving toward the latter as US stock futures initially dropped after the data was released but have returned to positive territory and the Dow opened higher on the day while the US dollar fell and bond prices rose. That could mean we’re back to a "bad news is good news" view on tapering. That view is also being enhanced by the manufacturing data earlier this week that also disappointed and helped spur a major drop in the Dow.

Attention also will come on Fed speakers in coming days to get a read on whether they are indeed rattled by this latest set of data. How they characterize the data will have a lot to say about how the market view may shift on the issue of tapering the asset purchases.


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