Friday, February 7, 2014

NFP disappoints, unemployment rate pleases, and the confusion continues ...

Well, it appears that the labor market may have taken a step back based on the establishment survey results, or a step forward based on the household results; but the equity market, as usual, is loving such confusion created by the Jan. employment figures.

NFP change for Jan. came in at 113K, significantly below our estimate and the Street's.  What is worse, is that the Dec. number was barely revised up to 75K, from 74K.  So, if we take the average of those two months, we get only 93.5K jobs added per month.  But let's even add the much higher revised Nov. figure.  In the BLS report, it was stated that change in NFP for Nov. was revised up by 33K to 274K!  The average jobs added per month since Nov. is only 154K, which is not necessarily a sign of a tighter, growing, or more competitive labor market.  

On the bright side, the 'official' unemployment rate fell 10bps to 6.6%. And the participation rate increased 20pbs to 63%, the level we saw in Nov., but much less than the 63.6% we saw in Jan. of 2013, and much lower than the 66%+ 10 years ago.  In addition, the more 'credible' U-6 unemployment rate fell to 12.7%, from 13.1%.  

It appears that the household survey results were a lot more positive than the establishment survey results.  The difference between the surveys in monthly change of the number of people employed in Jan. was 525K (establishment survey said 113K and household survey said 638K!).  Historically, since 1948, that difference has been an average of 172K.  Looking at it another way, again historically, that number has been above 500K only 5% of the time, only 42 of the 791 months.  Since 2000, it has increased to 7%.  Since the end of Q3 '07 (or beginning of the Great Recession), it increased to 8%.  During the last four years, again, only 8% of the time was the difference between the two surveys more than 500K.  However, for some reason, that number of occurrences has jumped to nearly 17% since 2012.  We are thinking that maybe the BLS should revise its revisions, again.  

Going back to the household survey, in terms of duration of unemployment, there were more people unemployed less than five weeks and 15 - 26 weeks.  Number of people unemployed for 27+ weeks continued its decline, which is good news.  

The number of people working part-time for economic reasons dropped more than 8% from Dec., while part-time for non-economic reasons went up by only 2%; taken together, these numbers can also be considered as positive.  

Now let's move to the not-so-great establishment survey results.  As mentioned earlier, change in NFP was very disappointing.  The biggest gains were in construction (a bit surprising given the media's over-hyped 'weather factor' supposedly impacting every economic indicator negatively; as you can tell, we just love all the BS we see and hear on CNBC), manufacturing, professional and business services, and leisure and hospitality.  The biggest declines came in government jobs, retail, and education and health services.  

While average weekly hours worked were unchanged at 34.4, average earnings per hour went up by a nickel from Dec., and up nearly 2% since Jan. '13.  This is not necessarily good news, especially when combined with the disappointing change in NFP.  Higher wages while there are no changes in hours worked and not that many more people are being hired, could force more companies to hire less, let go of some, and more importantly, it could make the Fed accelerate tapering or maybe slightly increase the federal funds target rate.  But obviously, the equity market doesn't think so, as the S&P 500 is up 0.4%.

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