After 52 straight months of gains, job growth finally gave way in January.
The Labor Department reported that non-farm payrolls dipped by 17,000 last month, the first case of red ink since August 2003. Granted, a loss of 17,000 in a labor pool of nearly 159 million is insignificant. In fact, we wouldn’t rule out a revision to positive territory next month. Indeed, the first report of December’s paltry 18,000 rise in nonfarm payrolls was revised up today to a more respectable 82,000 gain.
But revisions can’t reverse the downturn now gathering momentum throughout the economy. The all-important trend in job creation is clearly downshifting. It’s obvious in one-month and 12-month comparisons. And as today’s numbers suggest, the warning signs are no longer confined to manufacturing.
The service sector, which accounts for more than 80% of U.S. employment, eked out a tiny gain last month, creating just 34,000 new jobs. That’s a rounding error in the context of 116 million people working in the service sector. It’s also the first time since October 2005 that the service sector employment growth was effectively flat.

Is it a blip? An anomaly? It doesn’t look that way, given the supporting evidence. Consider yesterday’s weak GDP, for example, as we discussed in Thursday’s post. Another item: yesterday’s update on weekly new jobless claims, which is particularly worrisome for surveying the weeks and months ahead. As our chart below shows, the number of new filings for unemployment benefits spiked higher last week, rising to 375,000—the highest since the labor market upheaval in the wake of Hurricane Katrina in 2005.

The debate now is about how long the slowdown will last, how much pain it will inflict, and how successful Congress and the Federal Reserve will be in attempting to mitigate the downturn. There’s no question that the tide has turned. The optimists say that it’ll all be over in a quarter or two. Perhaps, although we’re not prepared to bet the farm on that one.
We’ve been hearing for more than a year that the real estate crisis was behind us and that the economy wasn’t vulnerable. Now we’re told by some that the slump will be mild and brief. In fact, the last 20 years support the optimists. The Great Moderation, as it’s been dubbed, has given us fewer and milder recessions. The past, of course, is not necessarily indicative of the future.
So, we’ll let the data guide us and try to keep our emotions in check. From an investment perspective, we expect 2008 will deliver a rainbow of opportunities. But not just yet. This storm is only just beginning to blow. Yes, we’re opportunistic and eager to exploit any sale prices in asset classes. We’re also prudent and mindful of the fact that even in 2008 there’s no way to know what’s coming. Balancing risk and reward is still job one.