INDICATOR: January Employment Report
KEY DATA: Payrolls: +113,000; Private Sector: +142,000; Unemployment Rate: 6.6% (down from 6.7%)
IN A NUTSHELL: "Who knows what the weather did to hiring in January so we need to, umm, chill, before we overreact to the disappointing job gains."
WHAT IT MEANS: I hope everyone has their power back. And that is precisely the point. This has been the winter from hell for the economy and the frigid cold, ice and snow have taken its toll. Payroll gains in January were a bit better than they were in December but nothing close to what we need to see. The details have, as usual, some real oddities. For example, there was a huge rise in the number of construction workers, something you would not expect given the weather. But many of those workers may have been on the payrolls of firms who turned from digging holes to digging out of snowstorms. Retailing was weak, except the declines were all in sporting goods, hobby and music stores. Got me, but a drop of 22,000 made a big difference in the total. But the real killer was a 29,000 job decline in government payrolls, with all levels pitching in. Not only are the government cut backs depressing the GDP numbers but they are also making it difficult to generate large job gains. Despite the weak hiring, the unemployment rate fell to its lowest level since November, 2008. Since there was a benchmark revision to the population base, the January Household Survey numbers (labor force, unemployment, etc.) are not directly comparable to the December data. Thus, we cannot say exactly what happened to the labor force. But the labor force participation rate did rise a little and more importantly, wage gains were decent. As the unemployment rate gets closer to full employment, which most economists think is in the 5.5% range, businesses will have to start bidding for workers. That should accelerate the wage increases, add to income and power improved consumption.
MARKETS AND FED POLICY IMPLICATIONS: This was a disappointing but at the same time not surprising report. There was simply no way to know how the winter has affected hiring and given what has been going on in February, we may not have any good idea of the trend in the economy for a couple more months. In the Philadelphia area, there are still hundreds of thousands of homes without power and that has to be devastating to some firms, but a boon to others, such as hotels. We just don't know what the impact will be, though it is likely to be negative. So, while traders might react to this report since they have to explain their actions some way, the rest of us should simply wait and see. That is likely the strategy the Fed will take. Indeed, given that the unemployment rate is almost at the FOMC's guidepost 6.5% rate, the members will have to cool their heels before deciding what is going on and how they should react.