Payroll growth in January was disappointing: a measly 113,000 jobs, the Bureau of Labor Statistics said Friday morning, well below economists' forecast for a gain of 180,000.
On top of that, the December payroll number—the ugly, 74,000 jobs numbers that everyone hoped would be revised up in the latest report—was barely changed.
However, the other gauge of the labor market's health, which comes from a different BLS survey, tells a different story. The unemployment rate dropped to 6.6 percent last month, from 6.7 percent at the end of 2013.
Crucially, it did this while labor-force participation rose, meaning more people were either working or seeking work. This is what economists call a decline for the "right reasons." In past months, however, a decline in participation—discouraged workers dropping out of the labor force—has contributed to the falling jobless rate.
The contrasting nature of the labor market's two headline numbers reveals how difficult it is to use a single indicator when discussing the job market these days.
It's a problem that has been acknowledged at the Federal Reserve, which has said it expects to keep its benchmark interest rate low "at least as long as" unemployment remains above 6.5 percent. Janet Yellen, the new chair of the Fed, said the unemployment rate was probably the single best indicator of job-market health last spring. But, she said, "the unemployment rate also has its limitations."
So even though the Fed said it might start to raise its benchmark interest rate once that number reached 6.5 percent, the wiggle room afforded by this assertion—"at least as long"—in the central bank's policy statement lets it take other variables into account: factors such as the rate at which people are quitting their jobs and getting new ones, the long-term unemployment rate, and labor-force participation.
Mohamed El-Erian, the outgoing chief executive of global investment firm Pimco, wrote in the Financial Times Thursday that he thinks the jobless rate is losing its utility . El-Erian argues that not only is the unemployment rate becoming an increasingly useless lagging indicator—how well it describes the health of the labor market—he also says it's becoming a bad leading indicator. Specifically, he says the unemployment rate is no longer good at predicting what the Fed will do.
"The Fed is slowly extending the concept of thresholds to a wider array of variables, including more holistic measures of the labor market and, more importantly, inflation targets that are in excess of the current (and projected) rate," he said.
The payroll pictures this month were weak. The unemployment picture was slightly better. A caveat: The survey that produces the payroll number is larger, and less volatile on a month-to-month basis. As such, economists afford its monthly reading slightly more weight than the survey that produces the unemployment readout. But to understand the labor market, we've got to talk about both.