Friday, February 3, 2012

Jobs report beats expectations

The January jobs report beat expectations by so much that virtually all observers are finding reasons to downplay the news, even me. January is a big seasonal month, since jobs always decline as businesses wind down from the holiday crush of activity. The raw (not seasonally adjusted) numbers show that the economy actually lost 2.7 million jobs in January, but the gain was reported to be +243K on a seasonally adjusted basis. What actually happened in January was that the economy lost a lot fewer jobs than expected. Does that mean it's a whole lot stronger? Perhaps. More likely, it just reflects the fact that the economy has been doing better than expected for the past several months, and the market has been rather consistently under-appreciating the inherent dynamism of the U.S. economy.

So the job gains probably were somewhat exaggerated because of statistical quirks and seasonal adjustment factors. But the fact remains that this was a solid jobs report, and a big (and probably final) nail in the coffin of the double-dip recession that was supposed to have emerged by now. The economy continues to grow and it continues to overcome the obstacles (e.g., the financial jitters and big economic slowdown in the Eurozone) and headwinds (faux fiscal stimulus and extreme monetary stimulus) that have been thrown in its path.



As the top chart shows, the biggest upside surprise came in the household survey, which (seasonally adjusted) reported a gain of 1.1 million private sector jobs. Wow! A lot of this was probably catch-up, since it had been growing more slowly than the establishment measure of jobs of he past several months. Taken from the post-recession low, the two surveys are now showing private sector job gains of 3.7 - 4.1 million jobs. Let's make it simple: over the past two years, the economy has gained about 4 million private sector jobs, for an average of about 170K per month, and the pace appears to have picked up in recent months. That's decent, but not yet what is needed to get the economy back on its long-term growth path. But most importantly, it is a whole lot better than the market's gloomy expectations.

As the second chart shows, we continue to see a decline in public sector jobs. That's been good news all along (with apologies to those who have been laid off) because the public sector had grown way too much and some shrinkage was essential in order to stop suffocating the more-efficient private sector. Let's hope we see a lot more of this over the next year or two.

14 comments:

Dr William J McKibbin said...

Unfortunately, the employment numbers are still far to low to be meaningful -- what is needed is not hundreds of thousands of new private sector jobs, but rather millions of new private sector jobs -- this could be accomplished by laying off every other public employee right now -- we need to be dealing with much bigger changes for any of the employment numbers to have any effect on reversing the still expanding Main Street depression in America...

Dr William J McKibbin said...

PS: Government needs to figure out how to exist on half their current budgets -- I am confident that technology can be leveraged that can automate most of government -- during the coming century, most of government will be eliminated -- our nation's goal should be to reduce government employment by 90% before 2050 -- by that I mean the automation of teaching, all administrative roles, and all of the middle-management functions that currently exist -- additionally, much of government can be made obsolete simply by abolishing most of government's functions -- I envision a government in the future that is run by very few people with much more credibility and efficiency than has ever been known in government during the history of humankind -- that's the goal -- that's the future -- government is the problem, period...

brodero said...

My personal recession indicator is now at its best level in over 5 years....Meaning we are far way from a recession with plenty of room
to grow with a Postponable Purchases to GDP ratio at 17.5% versus a 60 year average of 20.5%

Dr William J McKibbin said...

PPS: Income taxes in the US, both corporate and individual, should be abolished -- the government needs to find other ways to fund itself -- political scientists should get to work on finding new governmental funding models now -- everything we know as "government" today is obsolete -- we need to start over with fresh ideas...

Benjamin said...

And inflation is dead. The Fed has room to make it grow---but will the Fed dither and embrace the feeble side of its nature?

Dr William J McKibbin said...

PPPS: By the way, the US employment to population ratio for January 2012 is still stagnating at around 58%, down sharply from 64% in 2000 -- more at:

http://wjmc.blogspot.com/2012/02/us-employment-to-population-ratio-in.html

The emerging global economy has not yet figured out the future of employment -- again, fresh ideas about "work" are sorely needed -- there will be no going back to the past -- between 1912 and 1930, everything in the US changed -- the same will happen between 2012 and 2030 -- watch and learn...

Squire said...

High unemployment is normal now.
Low participation is normal now.
Government will stay big and crony capitalism will rule.

Vote against the status quo but flow with it.

L.A. said...

Wow, still lots of negativity in these comments.

The Private Sector Non Farm Employment chart tells me all I need to know. Jobs are being added at a pace equal to or greater than the recovery following the 2001 recession and appears to be accelerating.

Whether these numbers are "meaningful" or "at my desired pace" is irrelevant. The trend is there. If it continues, over time the employment to population ratio improves, and the economy recovers. The economy is expanding now. I think we're all mired in our negativity and not wanting to believe it.

Squire said...

A fresh idea about work: My 29 yo nephew, an Irish American, applied for a job in Hong Kong.

He has no money but the girls love him. He actually took two out at the same time so they could split the cost of the date.

Young men not interested in health care or education jobs should look to Asia for seeking their fortune.

Unknown said...

Told ya (2nd comment of mine)

My back-of-the-envelope calculation was off by 100K, but the number was still much larger than most people (except me) were expecting.

Scott Grannis said...

"Unknown" now joins the ranks of the independent Apple analysts who have managed to make the professional analysts look like amateurs. In the Internet Age, no one has an information edge.

Dr William J McKibbin said...

Hi Unknown, the good news is that the ungoing and extended devastation of the "recovery" is still a work in progress that is providing very real opportunties to acquire the best income-earning equities in America at bargain prices -- those with cash and skills are winning right now -- everyone else will have to muddle through the coming decade the best they can -- that's fine with me -- adding 200,000 private sectors jobs a month is a recipe for a working class horror story, at least in my opinion -- again, those with assets and skills are not in that group and winning "big time" in today's economy...

Unknown said...

Thanks Scott. :-)

In my many years of following economics as a hobby, I've learned you can study initial unemployment claims, and that'll cover about 80% of what you need to know.

Back in August when the market was crashing I could tell, based on initial claims, we were not headed for a recession, so I bought a bit of DuPont on the dip. Paying off well recently.

Bob said...

1.2 million went off the rolls of people looking for work. A record for one month. The unemployment rate is a farce.