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Thredgold Economic Associates
U.S. employment change

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.


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.

By sector

Goods-producing employment added 18,000 net new jobs during January (we think), with the manufacturing sector adding 49,000 jobs, the strongest monthly gain since August 1998. Additional manufacturing gains are expected over the balance of 2011 and in 2012 as U.S. manufacturers find solid U.S. and global markets. The construction sector lost an estimated 32,000 jobs (in part weather-related), while mining and logging added 1,000 jobs.

The nation's much larger non-government service-providing sector added 32,000 jobs during January. Retail trade added 28,000 net new jobs, while transportation and warehousing lost 38,000 weather–impacted jobs. Professional and business services added 31,000 jobs, while the financial activities sector lost 10,000 positions.

Education and health services added 13,000 jobs, while leisure and hospitality had a 3,000 net job loss. The government sector lost 14,000 jobs, again tied to the revenue squeeze on state and local governments.

Other key data

With all of the weather, revisions, and overall hocus pocus, the number of people officially counted as unemployed dropped to 13,863,000, down nearly 1.2 million since November. How many of these people found jobs or simply left the labor force remains a weather-induced mystery for now.

The "underemployment" rate — which includes the unemployed, those working part-time who would prefer to work full-time and those who have given up looking for work but would take a job if one were offered — dropped to 16.1 percent, down from December's 16.7 percent rate.

Average hourly earnings for all employees on private nonfarm payrolls rose by eight cents (up 0.4 percent) to $22.86. The rise of 1.9 percent during the most recent 12-month period slightly exceeds the rise in consumer prices.

It will get better!

Believe me, economists and financial market players are looking for greater employment clarity when the February data is released on Friday, March 4. We should, hopefully, at that time be able to find a stronger correlation between more and more signs of a U.S. economy doing better, strong profitability, rising stock prices and more robust employment gains.

It is also possible that the nation's unemployment rate could move temporarily higher in coming months. More national media reports of greater job availability, combined with more stories of jobs available closer to home in thousands of communities, could draw hundreds of thousands of people back into the labor force. Unless and until they find a job, they will be counted as unemployed.

Hopefully, the next few months will supply the missing ingredient in the solid economic expansion story now underway: stronger job gains. As economists, we are simply tired of making excuses every month.

Jeff Thredgold is chief economist for Zions Bank and founder of Thredgold Economic Associates, a professional speaking and economic consulting firm. Visit www.thredgold.com.