Reading the labor market tea leaves is never easy even in the best of times and the current environment can hardly be called that. This is particularly so following the surprising disappointment in last month’s nonfarm payroll report. All indicators in the lead up to that report were pointing to solid gains. But what happened doesn’t need to be repeated.
It seems like we got a rerun of that disappointing report this morning. When all indicators were pointing to a solid number for January, we came short, yet again. And the level of the ‘miss’ is particularly striking, even if we account for all the bad weather.
The drop in the unemployment rate to 9% from 9.4% last month is very unusual. But who can blame the army of unemployed from getting ‘discouraged’ in this environment. The saving grace of today’s report were the positive revisions to the December and November tallies and the gain in average hourly earnings. While the positive revisions for the prior months is positive, I am not willing to read much into the drop in the unemployment rate.
The takeaway from today’s report is that while the labor market is slowly healing, we haven’t yet reached the hoped-for inflection point when sizable new jobs would be created consistently. Having been disappointed in four of the last five monthly nonfarm payroll reports, we are certainly not there yet. But we are not that far off from that point.
Sheraz Mian
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