Under the weather
13 months ago, the Hurricane Sandy jobs report was released — the one for November 2012. Analysts were bracing themselves: a lot of people hadn’t been able to work that month, due to bad weather. But in the end, the report was not that bad: 146,000 new jobs were created in the month, and the unemployment rate nudged down to 7.7%. Markets, which had been expecting a mere 80,000 new jobs, were positively surprised.
This month, the story is the exact opposite. Yes, we knew there was bad weather in December, but no one expected it to have a huge impact on job creation. And yet the actual jobs report for the month is a huge disappointment: there were just 74,000 new jobs created, and the labor participation rate fell sharply yet again. On top of that, substantially all of the jobs which were created were in low-wage sectors.
Once you take into account the weather, however, the December report wasn’t that bad. A whopping 273,000 people were counted as “Employed – Nonagriculture industries, Bad weather, With a job not at work”, which is to say that they did not get counted in the payrolls figures even though they’re employed. Most of the time, that number is in the 25,000 to 50,000 range, and although it always spikes in the winter, this was the worst December for weather-related absence from work since 1977.
None of this is an exact science. The January 2011 jobs report, for instance, showed a weak gain of 36,000 in the headline payrolls number — but would have looked insanely strong if you added in the 886,000 people who couldn’t get to work, and weren’t paid, because of the snowstorms that month. That’s not just bigger than this month’s figure of 273,000; it’s also vastly bigger than the Hurricane Sandy figure of 369,000 in November 2012. And sometimes the numbers can be much bigger still: the record was set in January 1996, when 1,846,000 people were kept off payrolls by stormy weather, and the headline number on the employment report was a negative 201,000.
Still, when the weather series starts going skewy, the signal-to-noise ratio in the jobs report, which is pretty low to begin with, tends to drop even further. As a result, the Fed is unlikely to pay too much attention to this report. We’ve already started the taper now, so the important signal has already been set by the Fed: it doesn’t need to reduce the pace of bond-buying even further at this month’s meeting, the last one with Ben Bernanke as chairman. He’ll probably just hand over the reins to Janet Yellen and let her decide how aggressively to pull on them over the rest of the year. Certainly, with Yellen as chair and Stan Fischer as vice chair, the Fed has more than enough credibility: it can draw out the taper as long as it likes, in an attempt to help support the pace at which jobs are being created.
It’s worth remembering that when it comes to monetary policy, the markets are still looking almost exclusively at the jobs report: no one is remotely worried about inflation figures. So long as we continue to see underwhelming job creation, the Fed’s going to keep its foot on the accelerator. Especially if the weather is particularly awful.