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New Jobs Report Raises More Questions Than It Answers

New statistics on job growth show little evidence of momentum for the U.S. economy. In fact, this may be one case where fresh information actually raised more questions than it answered.

On February 1, the Bureau of Labor Statistics announced employment figures for January of 2013. Total non-farm employment rose by 157,000 during the month, a mediocre figure that was mitigated by strong upward revisions to job numbers from November and December. Here are some of the questions raised by this mixed message:
  1. Did the fiscal cliff affect hiring plans? Even though the budget crisis was resolved at the beginning of the January, companies don't formulate and implement hiring plans overnight. So, it is possible that the uncertainty created by the fiscal cliff had a lingering effect that dampened the January jobs number. The stock market showed renewed confidence once a budget deal was reached, and it is possible that companies will begin to share this confidence and ramp up hiring.
  2. Was the fourth quarter really better than originally thought? The upward revision of job numbers for November and December is particularly interesting in light of last week's initial estimate of fourth quarter GDP, which indicated that the U.S. economy actually shrunk after adjusting for inflation. Advance estimates of GDP are usually somewhat off the mark, and with job estimates being revised upward, it raises the possibility that the economy was actually better in the fourth quarter than originally thought. A second estimate of fourth quarter GDP is due at the end of February.
  3. Are the revisions good news or bad news? About those job figure revisions: November's new jobs number was revised upward to 247,000, and December's was revised upward to 196,000. Adding the amount of the revisions to the new jobs created in January means that there are now 284,000 more jobs than were believed to exist a month ago. That sounds like good news, until you look at the trend of these new figures: from 247,000 jobs in November to 196,000 in December to 157,000 in January. The job market looks as though it is losing momentum.
  4. Can the job market ever get out of neutral? This is the overarching question. Employment has been rising consistently, but at a tepid pace that is only slowly chipping away at the unemployment rate. In fact, even with January's new jobs, the unemployment rate actually rose slightly last month. Until monthly job growth consistently exceeds 200,000, don't expect to see steady improvement in the unemployment rate.

The Federal Reserve has clearly stated that unemployment must come down before it would consider raising interest rates. More broadly, economic growth is needed before banks will see the demand for capital necessary to induce them to raise rates on savings accounts and other deposits. So, the job market may remain a key indicator for anyone awaiting higher bank rates, but for now this indicator is raising more questions than it answers.

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