Private nonfarm payrolls revived in January after December’s tepid rise, but the rebound was well below expectations. Cold weather is again blamed as throwing a wrench into the jobs machine. Whatever the cause, private-sector employment increased just 142,000 in January over the previous month. Only December’s weak 87,000 advance is lower for the past year-and-a-half.
A dramatic reversal of fortunes for employment in retail trade explains today’s sluggish top-line number. In December, retail jobs popped by nearly 63,000; in January, payrolls in this corner contracted by around 13,000. The post-holiday shopping season probably behind the change. Nonetheless, the sharp dive in retail left a big hole in last month’s payrolls profile.
As usual when looking at month-over-month comparisons, it’s best not to make too much of the number du jour. That applies to today’s news, despite what you may hear elsewhere. Regardless of the volatility of late in the monthly updates, the year-over-year change in private-sector payrolls remains positive at about 2%, which is the trend rate we’ve seen for much of the past two years. Once again, nothing much has changed for the labor market by this benchmark.
The economy’s creating jobs at a moderate pace, in line with the growth rate in recent history. This relatively stable pace may appear threatened—or poised to accelerate—in any given month when a new number is published. But you can’t tell much from such data points without putting them in proper historical context in order to minimize the short-term noise.
Weather may or may not be weighing on the economy’s capacity to mint new jobs this winter. But from the perspective of looking for robust signals for analyzing business cycle risk, there’s not much value in comparing today’s data with the reports in the last several months. Indeed, revisions alone will play havoc with the numbers of the last two or three months.
The solution, as usual, is to look at a broad set of indicators, of which payrolls are only one input. In addition, it’s wise to compare all the data on a year-over-year basis for the most part. That’s the rulebook for calculating the US Economic Trend & Momentum indices. These benchmarks have been valuable for providing reliable evaluations of business cycle risk, and in the latest update there’s still no persuasive sign that the broad economic trend was in danger of slipping over the edge. Today’s payrolls report doesn’t change that analysis, even if the usual suspects in the media and elsewhere go off the deep end with an alternative scenario.
Yes, there may be trouble brewing for the state of macro affairs… or not. Depending on the numbers you choose to emphasize, you can project any trend that suits you. But if we’re making sober and relatively objective decisions based on a clear review of the published numbers, the assumption that moderate growth endures is still a compelling assessment, as it has been for some time. That could change when we see the next batch of reports and we should be open to changing our analysis, perhaps in rapid fashion. But such changes should be based on hard data that spans more than a month or two for a handful of indicators. Meamtime, it’s hard to argue that the status quo has left the building.
This piece is cross-posted from The Capital Spectator with permission.