On its face, today’s payrolls report makes no sense. The headline news, that just 36,000 jobs were created in January, is undeniably atrocious. It’s much less than the market expected, and it’s much less than even needed to keep up with population growth. On the other hand, there was a whopping great reduction of 0.4 percentage points in the unemployment rate, to 9.0%: that’s great news, seeing as how it was 9.8% in November.
There’s lots of scrambling around this morning from people attempting to reconcile these figures: how could unemployment have fallen by 600,000 people when the labor force was unchanged and barely any new jobs were created?
The main answer, I think, is that there altogether far too many moving parts going into this particular report, and as a result month-on-month changes simply aren’t very useful.
The BLS press release makes this very clear in a box right at the top, which says that
“Changes to The Employment Situation news release tables are being introduced with this release. In addition, establishment survey data have been revised as a result of the annual benchmarking process and the updating of seasonal adjustment factors. Also, household survey data for January 2011 reflect updated population estimates.”
The effects here are large and unpredictable: the total number of people holding jobs in December 2010, for instance, was revised down by a whopping 452,000 — but despite that, the official December 2010 payrolls number now shows an even bigger month-on-month rise than it did before. More generally the size of the total civilian labor force was revised downwards by 504,000, almost half of which came from the Latino population. That has all manner of knock-on effects: the BLS warns that “data users are cautioned that these annual population adjustments affect the comparability of household data series over time.”
This is a messy report, then — even messier than you’d expect from a monthly data series which is mainly valued for its speed as opposed to its accuracy. At the margin, it’s bad for markets, which concentrate on the headline payrolls number, and it’s good for politicians, who tend to concentrate on the headline unemployment number. But for anybody who’s neither a trader nor a politician, it’s a noisy series which is best treated with a whopping great amount of salt — especially in January, and especially also when any big-picture message is so murky.