The labor market improved in January according to the Bureau of Labor Statistics (BLS). The economy added 157,000 jobs. Not only were jobs added to start the year, but further gains were found in November and December after additional data was collected. The headline unemployment rate was up 0.1 percent to 7.9 percent. As we discuss below, that should be expected if the labor market is indeed healing.
Businesses continued to hire at the beginning of the year. Private payrolls increased by 166,000. The difference between the headline number and private hiring is the 9,000 jobs lost at the government level. Local government jobs were hit hardest as 6,000 positions were lost, with 4,700 of these municipality losses coming from education.
Revisions to the two previous months’ data suggest the labor market is even better than initially thought. November 2012’s initial estimate was an increase of 161,000. The latest tally from the BLS puts November’s payroll gain at 247,000! December also saw a large upward revision as the estimate went from 155,000 to 196,000. So while the headline number in January was not robust, the number of jobs created in the last three months is significantly better than first thought.
The unemployment rate that is reported on the nightly news did increase, but that is not the entire story. Ironically, one of the primary reasons the figure moved in the wrong direction appears to be confidence. As some “labor dropouts” begin to feel better about potential job prospects, they begin to reenter the workforce by looking for a job. This pushes the number of available workers up, but most of these reentrants to the labor market have yet to be hired, so the unemployed total initially grows at a faster rate relative to the total of all Americans who would like a job. In turn, this makes the unemployment rate increase. Of course, some of the growing workforce also comes from new entrants to the jobs market, so it is unfair to claim all of the uptick can be attributed to renewed confidence from previous members of the labor market.
Unemployment is a critical component to the health of the overall economy and the central bank watches it closely. Recently, the Federal Reserve explicitly tied its monetary policy to two indicators. One of those indicators is the unemployment rate (the other is an inflation measure). The central bank would like to see this statistic closer to 6.5 percent before it considers tightening monetary policy. The upward tick certainly suggests that the easy money policy coming from Ben Bernanke has just received an extension. (by C. Cox)