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The January jobs data

Contributed by Raymond James

By Scott J. Brown

Nonfarm payrolls fell by 20,000 last month, not a big miss relative to expectations and not as bad as some had feared. Annual benchmark revisions to the establishment survey data received more attention than usual. That was due largely to the fact that the payroll revision was much larger (-1.0%) than is typical (± 0.2%). The Bureau of Labor Statistics already told us that job losses in the recession were more severe than the previous data had indicated. However, the downward revision to payrolls was more severe than the BLS had estimated back in October. Still, there was encouraging news in the report.

Payrolls averaged a 35,000 monthly decline over the last three months – still negative, but nowhere close to what we were seeing a year ago (payrolls fell by an average of 753,000 per month in 1Q09, and by 620,000 in 4Q08).

Once a year, the BLS re-anchors payroll estimates to figures derived from the administrative records of the unemployment insurance tax system. The revised figures show that private-sector payrolls have fallen by 8.5 million since the recession began. However, revised data also show the downtrend flattening considerably in the last few months. That’s consistent with other evidence indicating a slower pace of job losses.

The unemployment rate fell unexpectedly in January (to 9.7%), and for once that was not due to a drop in labor force participation (in fact, the size of the labor force increased). The broad U-6 measure, which includes discouraged workers and those working part time but preferring full-time employment, dropped to 16.5%, vs. 17.3% in December. One month does not a trend make, and seasonal adjustment can add a lot of noise in January, but it’s moving in the right direction.

The labor market is still working through a period of structural change. Many of the jobs lost during the recession will not be coming back. This is reflected in the high level of permanent layoffs (which appears to have begun trending lower) and the elevated ranks of the long-term unemployed (41% of those unemployed have been without work from half a year or more). Construction payrolls continued to fall (-75,000 in January, about the average monthly loss in 2009), with nonresidential accounting for most of the decline since early 2009.

What was encouraging in the report? Average weekly hours rose to 33.9 overall (vs. 33.8 in December), with gains in most industries (manufacturing at 39.9, vs. 39.6). Payroll growth was reported in manufacturing (+11,000, the first increase in three years), retail (+42,100), and temp-help services (+52,000). The increase in hours and the rise in temp-help jobs are traditional precursors to new hiring. Also, productivity growth has been very strong, which hints at some new hiring ahead.

President Obama summed things up nicely in suggesting that the report is “not cause for celebration, but does provide hope.” Government efforts to stimulate jobs and spur the flow of credit to small firms should help reinforce the economic recovery, but it will still be a long haul for a full labor market recovery.