Hot on the Surface, Jobs Report Is Cooler at the Core - TheStreet

Hot on the Surface, Jobs Report Is Cooler at the Core

A freakishly large increase in construction payrolls was almost entirely responsible for the increase in payrolls above expectations.
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Excuses, excuses.

On its face the January

employment report

was significantly stronger than expected, but various factors make it less impressive than it looks. And that's good in the context of an economy that's growing at a rate far in excess of what the

Fed

considers sustainable.

For starters, the first major component of the report, the number of people on

nonfarm payrolls

, blew away the consensus forecast by adding 387,000. Economists surveyed by

Reuters

had predicted, on average, 255,000 new jobs.

But the gain was powered by an almost freakishly large increase in construction payrolls, which rose by 116,000. The average increase in construction payrolls over the previous 12 months was 18,000, and the January gain is the largest in at least 12 years. The

Bureau of Labor Statistics

said it was due at least in part to unseasonably mild weather during the survey week. The weather also boosted employment in other weather-related industries, the BLS said.

In other words, were it not for the weather, the nonfarm payrolls figure might have met expectations more or less on the nose. The single largest component of the workforce, the service sector, actually added fewer new jobs in January -- 256,000 -- than it did in December -- 298,000 -- when the total gain in nonfarm payrolls was 316,000.

Similarly, a second component of the jobs report, the

unemployment rate

, shed a tenth to 4.0%. But the BLS characterized the rate as "about unchanged," perhaps because rounding accounts for the drop to a large degree. In other words, the unemployment rate actually dropped to 4.03732% in January from 4.0592% in December. And the statisticians noted that unemployment rates "for the major worker groups -- adult men, adult women, teenagers, whites, blacks and Hispanics -- showed little or no change over the month."

Still, 4.0% is a 30-year low. (So was 4.1% -- both are the lowest rates seen since January 1970, when 3.9% of the workforce was unemployed.)

In the same vein,

average hourly earnings

as measured by the jobs report increased 0.4% in January, a tenth more than expected in a world where tenths count for a lot. But the December gain was revised to 0.3% from 0.4% and moreover, the year-on-year pace of earnings growth held steady at 3.5%.

Meanwhile, hidden in the jobs report is a downright friendly statistic. In addition to the regular unemployment rate, Fed Chairman

Alan Greenspan

has

let it be known that he also follows the so-called augmented unemployment rate, which incorporates the number of people who are not counted in the labor force because they haven't searched for a job recently, but who would like a job. That number, which is not yet seasonally adjusted by the BLS, rose sharply in January, to 4.354 million from 4.045 million. As a result, the not-seasonally-adjusted augmented unemployment rate rose to 7.4%, the highest since July, from 6.5%. Incorporating seasonally adjusted numbers where available, the rate rose to 6.9%, the highest since September, from 6.8%. The rates do not appear in the jobs report. They have to be calculated from figures in various tables.