Crosscurrents in the Jobs Picture
Having lived through the East Coast blizzard of late January, I can believe that it had any number of impacts. But it was clearly not responsible for the slower job growth, of only 151,000, that was seen in January. The reference period for the establishment survey, which is the basis for calculating the payroll jobs number, includes the 12th of the month. The reference period for the household survey, which, among other things, is the basis for calculating the unemployment rate, is the calendar week that includes the 12th of the month. Mother Nature, of course, handed us a few feet of snow during the last week of January.
Given the manner in which the Bureau of Labor Statistics adjusts for weather disturbances, they generally don’t impact employment counts even when they do hit during the reference week. In order for severe weather conditions to reduce employment estimates, employees have to be off work without pay for the entire pay period. Employees who receive even one hour of pay are counted as employed. This is a good thing. There are more than enough distortions to be concerned about in the complex task of assessing our labor market.
But while the snowstorm did not have an impact on the job count, it is entirely possible that the rather odd temperature patterns that much of the country has experienced during yet another atypical winter likely did, although in both directions. The above-average temperatures experienced during November and December likely stimulated construction employment, which grew by a strong 65,000 in November and 48,000 in December. There was bound to be a measure of payback, which normally follows atypical seasonal distortions such as this, and construction job growth slowed to 18,000 in January. Retail trade, by contrast, experienced a strong addition of 58,000 jobs in January after being essentially flat in December as the consumption of the seasonal items that are sold at clothing and department stores normalized and short-term employment responded.
With a mixed and indeterminate outcome from weather patterns, it remains a question as to whether the worrisome economy impacted job gains in January. The evidence of a significant slowdown in overall U.S. economic activity is mounting. While it is tempting to add the slowdown in job growth to the growing list of recent concerns, it is simply too early to do so. The labor market data are suggesting a range of crosscurrents that are generating unusual volatility.
Job growth in two sectors, for example, performed in counterintuitive ways. Given its exposure to a troubled world economy, the manufacturing sector certainly has the clearest reason for job weakness. But nonetheless, the factory sector added an impressive 29,000 positions in January, with notable contributions from diverse subsectors that include fabricated metal products, autos, and food. Whether this kind of performance can be maintained in the face of weakness in manufacturing output is certainly an open question. Just as mysterious is the sharp slowdown in job growth in professional and business services, from 60,000 in December to 9,000 in January. Only two months of the past five years have seen such a weak performance in what has been an impressive employment-creating sector.
January data from the household survey are clearer than the data from the establishment survey—and suggest a measure of strength. The unemployment rate dipped to 4.9%, the lowest since February 2008. Remarkably, this came with an increase in the labor force, as the number of unemployed dipped significantly. While I have consistently commented on the persistence of a nearly four-decade low in the labor force participation rate, the slight but consistent increase in participation since September 2015 merits attention.
Nonetheless, in spite of the experience of the past few years, the labor market and the economy really do not live in two different worlds. The wedge between them has been exceptionally weak productivity growth since 2010. But if indeed the economy is experiencing a significant slowdown, then it will eventually impede job creation. However, the somewhat atypical crosscurrents in the January report, both natural and human, prohibit us from concluding just yet that an economic slowdown is measurably affecting job gains.