January jobs report: why I am discounting the headline strong jobs number

January jobs report: why I am discounting the headline strong jobs number

HEADLINES:
  • +225,000 jobs added
  • U3 unemployment rate up +0.1% to 3.6%
  • U6 underemployment rate up +0.2% from 6.7% to 6.9%

Leading employment indicators of a slowdown or recession

 

I am highlighting these because many leading indicators overall have strongly suggested that an employment slowdown is here. The following more leading numbers in the report tell us about where the economy is likely to be a few months from now. These were mixed to slightly negative:

  • the average manufacturing workweek was unchanged  at 40.4 hours. This is one of the 10 components of the LEI.
  • Manufacturing jobs declined by -12,000. Manufacturing gained only 26,000 jobs in the past 12 months.
  • construction jobs rose by 44,000. In the past 12 months construction jobs are up 142,000, a deceleration from 207,000 in 2018. Residential construction jobs, which are even more leading, rose by 2400.
  • temporary jobs declined by -1500. Last months initial +6400 was revised downward to +5900..
  • the number of people unemployed for 5 weeks or less declined by -6,000 from 2,065,000 to 2,059,000.
Wages and participation rates

Here are the headlines on wages and the broader measures of underemployment:

  • Not in Labor Force, but Want a Job Now: increased by 72,000 to 4.904 million
  • Part time for economic reasons: increased by 34,000 to 4.182 million
  • Employment/population ratio ages 25-54: rose +0.2% from 80.4% to 80.6%
  • Average Hourly Earnings for Production and Nonsupervisory Personnel: rose $.03 to $23.87 (while December was revised upward), up +3.3% YoY – a deceleration from recent YoY growth. (Note: you may be reading different information about wages elsewhere. They are citing average wages for all private workers. I use wages for nonsupervisory personnel, to come closer to the situation for ordinary workers.)
Holding Trump accountable on manufacturing and mining jobs

 Trump specifically campaigned on bringing back manufacturing and mining jobs.  Is he keeping this promise?  
  • Manufacturing jobs rose an average of +2200/month in the past 12 months vs. the last seven years of Obama’s presidency in which an average of +10,300 manufacturing jobs were added each month. This is a sharp deceleration.
  • Coal mining jobs increased by +200, and an average of -67 jobs/month in the past year vs. the last seven years of Obama’s presidency in which an average of -300 jobs were lost each month

November was revised upward by 5,000. December was also revised upward by 2,000, for a net change of +7,000.

Other important coincident indicators help  us paint a more complete picture of the present:

  • Overtime declined -0.1 hour to 3.1  hours
  • Professional and business employment (generally higher-paying jobs) rose by 21,000 and is up 390,000 YoY, a deceleration from 561,000 in 2018.
  • the index of aggregate hours worked for non-managerial workers rose by 0.5%
  •  the index of aggregate payrolls for non-managerial workers rose by 0.6%

Other news included:

  • the alternate jobs number contained  in the more volatile household survey declined by -679,000  jobs.  This represents an increase of 2,087,000 jobs YoY vs. 2,052,000 in the establishment survey. [Note: I originally reported a much lower number in error]
  • Government jobs rose by 19,000.
  • the overall employment to population ratio for all ages 16 and up rose +0.2% to  61.2% and is up 0.5% YoY.
  • The labor force participation rate rose +0.2% to 63.4% and is up 0.2% YoY.

SPECIAL NOTE ABOUT ANNUAL REVISIONS: Both the establishment and household survey had major annual revisions this month. In the establishment survey, the first four months of 2019 were revised downward by -110,000. But the last 8 months were revised higher by +98,000. The population control for the household survey subtracted over -800,000 from population growth in 2019. Thus the January household employment number of -89,000 represents a monthly gain of 418,000 overcome by a -507,000 population adjustment. Note this does not change the YoY number in the household report.

SUMMARY

This report was very mixed. The headline jobs gain in the establishment survey masked continued declines in several leading components. Meanwhile the headline unemployment numbers in the household survey masked strong participation gains, once the annual population adjustments were made.

Because participation is a lagging part of the report, while the leading components were neutral to negative, I am taking the headline strength in the jobs number with a grain of salt. I have a strong feeling that the improved numbers for the last 8 months of last year are going to get revised downward once we have more information.

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