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.
What We're Following See More »
"The Senate standstill over a stopgap spending bill appeared headed toward a resolution on Friday night. Senators who were holding up the measure said votes are expected later in the evening. West Virginia Democrat Joe Manchin had raised objections to the continuing resolution because it did not include a full year's extension of retired coal miners' health benefits," but Manchin "said he and other coal state Democrats agreed with Senate Democratic leaders during a caucus meeting Thursday that they would not block the continuing resolution, but rather use the shutdown threat as a way to highlight the health care and pension needs of the miners."
Donald Trump transition team announced Friday afternoon that top supporter Rudy Giuliani has taken himself out of the running to be in Trump's cabinet, though CNN previously reported that it was Trump who informed the former New York City mayor that he would not be receiving a slot. While the field had seemingly been narrowed last week, it appears to be wide open once again, with ExxonMobil CEO Rex Tillerson the current favorite.
The House has completed it's business for 2016 by passing a spending bill which will keep the government funded through April 28. The final vote tally was 326-96. The bill's standing in the Senate is a bit tenuous at the moment, as a trio of Democratic Senators have pledged to block the bill unless coal miners get a permanent extension on retirement and health benefits. The government runs out of money on Friday night.
The Senate passed the National Defense Authorization Act today, sending the $618 billion measure to President Obama. The president vetoed the defense authorization bill a year ago, but both houses could override his disapproval this time around.