January Employment Numbers: Don’t Believe The Hype

Employment statistics may be released, revised, rereleased, and revised again, but the importance of employment statistics in the financial markets remains undeniable. In fact, anyone paying attention to the news or the financial markets last week would have heard of the most recent employment statistics to take the world by storm. On Friday, February 3rd, the Bureau of Labor revealed that for the month of January the unemployment rate made the giant leap down 0.2% to 8.3%, the lowest rate since February 2009’s 8.1%. And the crowds went wild! The NASDAQ saw a jump on to an eleven year high. The Dow closed just around its four-year high. The media spared no words of optimism. ABC news referred to the report as a “long-awaited surge of hiring” which “seemed to reinforce that the nation is entering a virtuous cycle”. Yahoo News called it a “hiring burst” and “the most impressive surge for the job market since early last year”. Now before jumping on the blissful bandwagon, make sure you understand what really lies inside that jobs report. The good news: widespread job growth in the private sector occurred as nonfarm payroll employment rose by 243,000; unemployment rates declined for both adult men and blacks; and unemployment fell from 8.5% to 8.3%. The small print: the participation rate in the labor force dropped from 64% to 63.7%. While this doesn’t sound like much the numbers are actually staggering: almost 1.2 million of the nearly 1.7 million people added to the Civilian noninstitutional population from December to January were not in the labor force. This means about 70% of the estimated additional population in the United States was not considered to be in the labor force. The Bureau of Labor had the following justification for the largest single month addition to the “not in the labor force” in history: “This was because the population increase was primarily among persons 55 and older and, to a lesser degree, persons 16 to 24 years of age. Both these age groups have lower levels of labor force participation than the general population. “ I am not in any position to make judgments on the statistical methods of the Bureau, but those numbers are not reasonable and the Bureau’s justification does not cut it. I urge you to realize the strong political pressure placed on the Bureau to release such good sounding numbers. I urge you to ask yourself whether all of the 70% of the increase in the population in January could have possibly not belonged in the labor force. And I urge you to take the most recent jobs report with a grain of salt.

-Kyle Cameron


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