Unemployment data for January

This morning the January unemployment data was released by the Department of Labor.  I am guessing that most pundits are going to focus on the low number of net jobs added by all of the various economic sectors.

Specifically, total non-farm payrolls increased by 36,000 last month.  This compares to an expectation of 136,000 new jobs added by a consensus of economists.  The overall unemployment rate fell to 9.0%, whereas it was expected the unemployment rate would fall to 9.5%.

Analysis: It would be difficult to spin this data into something super positive, but there are several silver linings here.  But more on that in a moment.  Encouragingly, the private sector added 50,000 jobs last month.  that means that sans private employers the economy actually lost jobs last month.

I don’t consider that to be a bad thing.  Governments at all levels of society, local-state-national, are cash strapped and debt inundated.  During the Great Recession it was very important that the government pick up some of the massive hiring slack.  Now that the economy is recovering it is understandable that there would be jobs lost in the public sector of the economy.

Now, private employers didn’t exactly screamingly participate in the market for hiring new folks.  However, 50,000 jobs is still 50,000 jobs added.  While the total number of hires didn’t meet expectations, the fact is that we still are in positive territory for the number of jobs added.

Something interesting is happening.  Something interesting that I have shared with readers before is always a telling sign.  What?  There are several sources of jobs data, the Department of Labor data that we have today, the Commerce Department’s weekly jobless claims, and the Automatic Data Processing (ADP) jobs data.  Right now they are in disagreement with one another.  That is always a sign that change is happening more rapidly than statistical methods can capture.

In other words, we are in a moment of flux.  That’s why the data don’t agree with one another in terms of magnitude.  But, the even more interesting thing is that the data do agree in terms of direction.  That is, the data agree that the jobs market is improving.  The disagreement is in how fast jobs are being added.  ADP says lots of jobs are being added, whereas the governmental data says that the number is much lower.

But that brings me to my next point.  My focus in these data is almost never on the current data, but on the revisions to previously reported data.  You see, most economy-wide statistics are estimated.  That means that as actual data rolls in the old data has to be revised.  This marks the third month in a row that the total number of jobs added data has been revised upward.  That means that the statistical methods used to estimate the reality on the ground are consistently under-counting the number of jobs added.

Specifically, the number of jobs added in December was revised upward to 121,000 jobs added versus the previous estimate of 103,000 added.  Clearly this is a good thing.

In these moments of data disagreement there are BIG opportunities as an investor.  Most likely the stock market is going to fall today.  If you have been sitting on the sidelines with cash this may be a good day to buy.  Most investors get nervous when there is a lack of certainty, where there is an uncertain direction.

To summarize what I have said so far.  The conflicting data from the various providers is an indication of a moment of flux – it seems that things could either go up or down since there is no agreement.  Yet, all of the data being reported lately indicates the economy is creating jobs.  Not only that, but all of the revisions for the past several months is upward.

Now to the part of the unemployment report that I don’t like.  The unemployment rate fell dramatically to 9.0%.  On the surface that may sound like good news.  However, it is not.  The reason is that the unemployment rate only counts folks who are actually looking for work.  For the rate to have fallen so far, 0.6% with only 36,000 net jobs being added by the economy, means something unfortunate.

Many people are so discouraged by the job market that they have stopped looking for work.  These people may not be looking now, but eventually they will need to find work.  What that means is that as the labor market improves these folks will again be trying to get hired.  In turn, that means that they will then be counted again in the data.  And that means that they will put upward pressure on the unemployment rate, perhaps for years to come.

This is a fancy way of saying the unemployment rate is going to be stubbornly high for a long time.  Ouch!

Importance grade: 10; I had dropped the importance grade on these data over the last several months because a stable and upward positive trend was indicated.  That meant that we could begin to take the data out of our consciousness to some degree.  However, the big disappointment amidst what appears to be a moment of great flux in the labor market has re-upped the importance of this data.

Jason