With the nonfarm payrolls (NFP) report just around the corner, I think it’s fair to ask, are we in for another positive surprise? Digging deep into the figures… I’m afraid not.
In the last NFP report, we got a late Christmas gift, as the report indicated that 200,000 jobs were added to the U.S. labor market. This marked the first time in 7 months that the NFP report hit that mark. That’s almost as long as the amount of time it takes for us to convince Cyclopip to take a bath!
Word on the street is that a mere 150,000 jobs were added this past January. Looking back, this shouldn’t be too much of a surprise.
Holiday jobs to be shed?
The U.S. labor market has a history of jumping up in December, as the courier industry adds jobs in order to deal with the spike in holiday demand. As I pointed out last month, the courier industry added 46,300 and 30,100 jobs in December 2010 and 2009 respectively, only to see these jobs vanish by the time January rolled around.
Seeing as how 42,000 jobs were added to the courier industry last December 2011, an estimate of 150,000 for the NFP report seems about fair.
Work force dropouts
Survey says that the unemployment rate will likely stay at its 35-month low at 8.5%. Keep in mind, the unemployment rate managed to drop so much over the past 12 months (from 9.4% in December 2010), but not necessarily because a greater percentage of the population are employed. The fact that people are dropping out of the work force played an equally large (if not bigger) role in dragging down the unemployment rate!
There’s no denying that these days, fewer people are looking for work. This is evidenced by a notable decline in the participation rate, which is now only at 64%.
To put things into perspective, back in December 2007, the labor participation rate was at 66% while the unemployment rate was only at 5.0%! The case may very well be that the Average Joe’s morale has sunk so low that he has given up looking for work altogether!
At 8.5%, the unemployment rate sort of presents a distorted picture of the labor market. As a matter of fact, Fed member William Dudley himself recently said that the “decline in the unemployment rate may overstate the improvement in labor market conditions.” Straight from the horse’s mouth!
I guess the point I’m trying to drive across is that we shouldn’t just take the unemployment rate at face value… and we shouldn’t be surprised if it manages to stay low!
Watching the numbers
I think that as long as January can post a 6-digit increase, the Fed will keep its hands in its pockets and hold off on further quantitative easing for the meantime.
On the other hand, since no one’s really expecting to see a figure below 100,000, anything below this number may be cause for alarm for the Fed, and it may put pressure on the central bank to push through with QE3 next month!