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Tea Leaf: Latest jobs report is noisy, soggy, mushy

Published: Tuesday, Feb. 8 2011 3:21 p.m. MST

U.S. employment change

Thredgold Economic Associates

The weather-impacted January employment report was described by various financial market analysts and economists as lousy, confusing, mysterious, frustrating, noisy, favorable, confounding and most any other descriptor you can imagine. Suffice to say that we will need to see the February report in early March to get any much-needed clarity.

Officially, the U.S. economy added a modest 36,000 net new jobs during January, short of the 145,000 net gain expected. Private sector job gains of 50,000 net new jobs were also far short of the mark. Better news saw initially reported gains for the two prior months revised higher. November's 71,000 gain was revised to 93,000 net new jobs. December's 103,000 initially reported rise was revised to 121,000 net new jobs.

The noise

The 36,000 rise in January employment was muddied by a variety of factors. First of all, an estimated 886,000 employed people were unable to get to work during the week of Jan. 9, the week wherein the U.S. Department of Labor's Bureau of Labor Statistics conducted its employment samples.

As a result, no one really knows what happened with employment in January. Various Wall Street economists have suggested in recent days that employment gains would have been 100,000-150,000 higher without the weather disruption. Such a higher number would have been largely in line with, or exceeded, forecasts.

But wait … there's more!

Despite weakness in January job gains (we think), the nation's unemployment rate fell sharply again to 9.0 percent, versus the 9.4 percent rate of December. The 9.0 percent reported rate was the lowest in 21 months.

Recall that the rate had fallen sharply in December from November's 9.8 percent rate. In fact, the plunge from a 9.8 percent November jobless rate to 9.0 percent in January was the largest two-month decline sine 1958.

The mystery

How could the jobless rate fall so quickly while reported job gains of the past two months were less than expected? Part of the answer lies in the fact that job gains as measured in the "household survey" were sharply higher than in the "establishment survey" of employers.

But wait … there's more!

In addition, the Bureau of Labor Statistics also included annual revisions to employment and population estimates, which also impacted the employment data. Such revisions (along with the weather disruptions referred to as "noise" by economists) only added to the confusion.

What we do know is that job losses during 2009 were more than initially reported, while gains during 2010 were less than reported. The U.S. economy suffered a net loss of 3.6 million jobs during 2008 (unrevised), the worst year for employment since 1945.

Calendar year 2009 actually recorded a net loss of 5.1 million jobs, worse than the 4.8 million loss previously reported. In addition, 2010 added only 900,000 net new jobs, versus the 1.1 million gain previously calculated.

Ouch.

Getting stronger

Despite the "noise" in the employment data, Wall Street interpreted the report as one more sign of a U.S. economy doing better. A handful of key economic indicators have all been strong in recent weeks, leading economists to boost economic growth — and inflation — projections.

One sign of stronger economic growth expectations and rising inflation anxiety was an increase in long-term interest rates in recent days. The 10-year U.S. Treasury note yield rose from the mid 3.40 range to the mid-to-high 3.60 range. Should such a level persist, the recent period of 30-year fixed-rate conventional mortgages beginning with a "4" could be short-lived.

Back to the jobs data.

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