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News & Analysis US

The Economy Lost 2.87 Million Jobs in January

February 11, 2014, Tuesday, 05:55 GMT | 01:55 EST | 11:25 IST | 13:55 SGT
Contributed by Raymond James

Poor weather and large seasonal adjustment make a lot of the winter economic data unreliable. While the adjusted payroll total rose less than expected last month, the unadjusted figures did not appear to be much out of line with the typical pattern. The figures have little bearing on the 2014 outlook.
In its household survey, the Bureau of Labor Statistics measures the number of individuals who couldn’t make it to work during the survey period due to bad weather (note that these figures are not directly comparable to the payroll figures, which come from the establishment survey). The BLS noted that 262,000 people could not make it into work due to adverse weather last month, vs. 232,000 in January 2013 and a 330,000 average for the last 10 Januarys (268,000, if you exclude January 2011’s 886,000). In other words, the January weather did not appear to be much worse than normal. However, in December, 273,000 could not make it into work due to adverse weather, vs. a 10-year average of 179,000. So, the January weather impact was likely influenced by the larger negative impact in December.
Still, the decline in retail and education payrolls does suggest a January weather impact. Manufacturing hours also declined, which is consistent with bad weather.
The unemployment rate fell further in January, dropping to 6.6%, the lowest since October 2008. Much of the decline in the unemployment rate over the last few years has been due to lower labor force participation. That wasn’t the case in January. The participation rate rose. However, there were some unusual details in the household survey results. The unemployment rates for teenagers and young adults jumped, suggesting that there may have been issues with the seasonal adjustment, while the rate for those aged 25-54 fell further.
A couple of New York Fed economists set off a debate last week by suggesting that the employment/population ratio is “a misleading labor market indicator.” To be sure, some of the drop in labor force participation is demographics. As the baby-boom generation moves into retirement, participation has begun to trend lower. The New York Fed adjusted the figures for the changing demographics, but still concluded that while the labor market has been improving, “it still has a ways to go to reach a full recovery.” Note that one could also look solely at the 25-54 age group, which shouldn’t be subject to the demographic shifts. Labor force participation for this group has declined, suggesting that there is more at issue here than demographics. The e/p ratio has improved, which is a good sign, but there is still a large amount of slack remaining.
Will the slower trend in payrolls lead to a more gradual Fed tapering? Or will the drop in the unemployment rate (now near the 6.5% threshold) lead to an increase in short-term interest rates sooner rather than later? Neither. The Fed is well aware of the anomalies in the economic data and the figures have had no significant impact on the 2014 economic outlook. Fed Chair Yellen should echo that sentiment this week.