Today’s employment report for January strikes yet another blow at the forces of pessimism emboldened by last week’s surprisingly weak fourth quarter economic news. Indeed, this week’s news on the economy has been generally upbeat, offering a sharp counterpoint to last Friday’s disappointing GDP release. But there’s a catch: the encouraging update on the employment front comes at an anxious time for inflation expectations, which are on the rise, or so the ongoing bull market in gold suggests.
Sticking with jobs for the moment, it’s a bit easier to be cheery about growth this morning. The Labor Department advises that the jobless rate last month fell to 4.7%, the lowest since July 2001. The economy created 193,000 new jobs in January, up from December’s relatively sluggish pace of 140,000. Although November’s revised sizzling pace of a 354,000 gain seems a world away, it’s nonetheless clear that the American economy’s ability to mint new employment opportunities is far from dead in 2006. Indeed, last month marks the 29th straight month of growth in new jobs. The previous stretch of unbroken gains was the 33 months through May 2000 (the run would have been 52 months had it not been for August 1997’s mild stumble, but we digress).
Adding to potency of January’s employment momentum is the fact that the rise was broadly dispersed. Even the perennially job-challenged manufacturing sector managed to eke out a gain of 7,000 new jobs last month. Only retail trade and government posted losses, albeit relatively slight ones at that.

For those who are inclined to point out that January’s monthly job growth pales next to the best months of recent years, Ian Shepherdson, chief U.S. economist for High Frequency Economics, suggests it’s time to rethink such pessimism. A mini boom, in other words, seems to define the labor market of late. The January jobs report
“is much stronger than it first appears,” he tells today. “Despite the ‘disappointing’ headline, this is a strong report, with the theme again one of upward revisions.” The statistical point being: the average for payroll growth has been 229,000 in the past three months, well above the 160,000 average for all of 2005.
But if there’s a flip side to the continued momentum of the payroll train, yesterday’s report on labor productivity is in the running as the statistical bad boy that threatens to throw an egg on an otherwise jolly party. Productivity (a measure of per-person output) declined 0.2 percent in the business sector and 0.6 percent in the nonfarm business sector, the Labor Department reported on Thursday. Those are the first quarterly declines since 2001. In the same report comes news that non-farm labor costs rose 3.5% in the fourth quarter.
The combination of falling worker productivity and rising labor costs has sparked worries anew that inflation, however docile at the moment, may be gearing up for a return engagement in the near future.
“The glory days of surging productivity that kept labor costs down look to be behind us,” opines Joel L. Naroff, chief economist at Naroff Economic Advisors, in today’s Washington Post. “The expected slowdown in productivity has arrived, and that is putting pressure on costs and the Fed.”
You don’t have to say that twice to gold bugs. The precious metal this morning was trading just a hair under 25-year highs.
Even the bond market seems to be taking the hint. The yield on the benchmark 10-year Treasury jumped to 4.6% this morning, the highest since November 15. Over in the pits of Fed funds futures trading, expectations are on the march that the Fed will keep raising interest rates. The CBOT’s July 2006 Fed funds contract, for instance, is priced in anticipation of a 5.0% rate, or 50 basis points above current Fed funds.
Meanwhile, sellers have the upper hand in the stock market this morning as well, building on yesterday’s drop in the major market averages.
Distinguishing between good news and bad news is seemingly easy in the grand scheme of the dismal science, but it’s getting tougher for investors trying to make informed decisions in 2006. Maybe the answer is simply to wait once again for a revision that better suits your expectations. The good news: there’s always a fresh update coming.

3 thoughts on “THE PLOT THICKENS (AGAIN)

  1. Lord

    But if this rather unremarkable number of jobs created, as 150k is needed just to keep pace with workforce growth and our expectations have diminished so much that anything over this number is considered good, doesn’t a fall in unemployment demonstrate weakness as few participants that have left the workforce are returning to it? I would characterize this as good news about bad jobs rather than good news about good jobs.

  2. jill

    Some observations on the job number:
    Bar and restaurant hiring continued apace in January and that, in the past four months, this bracing sector has chipped in one of every seven new jobs.
    Layoffs for January 2006 were 12 percent higher than the January 2005 level. Announced layoffs were above 100,000, and came from Ford, Mattel, GM, Mitsubishi, Time Warner, Electronic Arts, BF Goodrich, and others. When you are laying off, you are not likely to be hiring.
    Birth/Death adjustment accounting for well over a third (~37%) of all newly created jobs since the recession ended.
    This is the worst jobs creation recovery since WWII ended (Cleveland Fed)
    Some interesting charts:
    The full measure of U-6 is 8.75%:
    This Snapshot was written by EPI research director Lee Price with research assistance from David Ratner
    Changes in tax law since 2001 reduced federal government revenue by $870 billion through September 2005. Supporters of these tax cuts have touted them as great contributors to growth in jobs and pay. But, in reality, private-sector job growth since 2001 has been disappointing, and a closer look at the new jobs created shows that federal spending—not tax cuts—are responsible for the jobs created in the past five years.
    If tax cuts have created jobs at all since 2001, it will have happened in the private sector. Assuming that job growth in 2006 matches the Bush Administration’s projections, the economy will have added about 2.0 million jobs to the private sector from FY2001 through FY2006. But how many of these two million jobs actually can be attributed to tax cuts and how many to increased government spending—particularly increased defense spending—in this period?
    Based on Defense Department estimates of the number of private-sector jobs created by its own spending, we project that additional defense spending will account for a 1.495 million gain in private sector jobs between FY2001 and FY2006. Furthermore, increases in non-defense discretionary spending since 2001 will have added yet another 1.325 million jobs in the private sector, for a total of 2.82 million jobs created by increased government spending. Increased mandatory government spending—which is not even included in these estimates or the accompanying chart—would account for even more job creation. The mere fact that the projected job growth resulting from increased defense and other government spending exceeds the actual number of jobs projected to be added to the economy through 2006 clearly indicates that the tax cuts hardly seem plausible as the engine of the modest job growth in the economy since 2001.
    When you have time I would like to see you comment on the U.S. Debt…
    The debt limit is $8,184,000,000,000.
    We are in default. What is going on?

  3. captain nemo

    participation rate was stable at 66% in january…granted, this is down from a high (i think) of 67.3% in early 2000, but at least one fed member thinks the decline is structural, not cyclical…comments???

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