Weak Jobs Report Produces More Questions Than Answers
Business + Economy

Weak Jobs Report Produces More Questions Than Answers

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A second straight disappointing jobs report is casting doubts over what had appeared to be a strengthening labor market, but economists warn that the new numbers should be treated with extreme caution.

The U.S. economy added 113,000 new jobs in January, markedly below the consensus estimate of about 185,000. The Bureau of Labor Statistics reported that 142,000 new jobs were created by the private sector during the month, including 48,000 in construction and 21,000 in manufacturing. But job losses, particularly in the retail sector (-13,000) and the federal government (-12,000) combined to help drive the net jobs total lower.

Related: Do Businesses Benefit from Unemployment?

Yet economists said that, as grim as the headline number might seem, other figures in the monthly report aren’t quite as bleak, leaving no clear answer to whether the jobs recovery has stalled out again.

The unemployment rate ticked down by one tenth of one percent, to 6.6 percent, as the labor force participation rate increased slightly, to 63.0 percent from 62.8 percent. These numbers are important, because they reflect the fact that discouraged workers appear to be returning to the labor force, suggesting that the decline in unemployment this month is being driven more by the increase in available jobs than by people deciding to stop looking for work altogether.

And the survey of households indicated a much higher figure of 616,000 new jobs. 

“The world looks a lot more rosy in the household survey than in the employer survey. That gulf seems to be increasing over time, and I think a lot of economists are struggling with what to make of that,” said Alan Berube, senior fellow at the Brookings Institution.

Other factors, including several severe winter storms, an annual adjustment to the survey’s benchmark numbers and the fact that more than one million Americans had their long-term unemployment benefits cut at the end of December, may also have created the kind of statistical noise that make the true movement in the job market difficult to discern.

“Given the statistical mess, the only real message is that the economy is not accelerating significantly,” wrote economist Douglas Holtz-Eakin, former head of the Council of Economic Advisers under President George W. Bush. “The bottom line: The January report far from clarifies muddy waters. The question was whether December job growth was a weather-related aberration that disguised modest acceleration. The only bottom line is that the answer is no. There is no catastrophe, but no evidence of acceleration either.”

There were some encouraging signs in the report. The number of long-term unemployed declined by 232,000 and the number of workers forced to take part-time jobs instead of full-time ones also improved. The total number of long-term unemployed is still high, though, at 3.6 million workers, or 35.8 percent of the unemployed. In January, 514,000 fewer workers reported that they were involuntarily working only part-time, bringing the number of people considered “underemployed” to 7.3 million.

Brookings’ Berube said that the persistence of long-term unemployment reinforced the need for a renewing then extension of unemployment insurance benefits, a measure that the Senate failed to advance yesterday. "It’s penny-wise and pound-foolish,” Berube said of Congress’s inaction. “The rate of long-term unemployment is still high, and demand, in the economy in generally and particularly in the places where a lot of the long-term unemployed live, is still low.”

Extended unemployment insurance benefits ended on Dec. 28, and the impact of that expiration may not fully be reflected in the January jobs data. “Those who lost extensions to their unemployment insurance were still looking for a job at the end of December (in order to qualify for their insurance), which means it is too soon to determine the impact that the end of insurance extensions means for labor force participation,” economist Diane Swonk of Mesirow Financial wrote.

Berube said that the fact that unemployment benefits were discontinued for more than 1 million Americans may help explain the seasonally adjusted decrease of 13,000 workers in the retail sector. “The rational approach would be to make sure that these people have enough money to support themselves and their families, and to create more jobs in retail. Because they have little money, they tend to spend the money they get,” he said.

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