The headline from this morning’s employment report is that the economy created 113,000 new jobs in January, and the unemployment rate fell by one-tenth of a percentage point to 6.6%.
Today’s report reminds us not to judge a book by its cover.
We knew this would be a tough report to interpret going into this morning. Bad weather in December suppressed December’s employment counts, suggesting that employment gains from December to January — reported this morning — would be strong. But bad weather in January may have suppressed January payrolls as well, leading to a counteracting effect. The expiration of extended unemployment benefits at the end of December was expected by many to complicate the interpretation of January’s labor force statistics, but this doesn’t seem to be the case. (More on that later.) Finally, technical changes to both the payroll and household surveys make it particularly tough to compare this month’s report to last month’s.
Alright, with the throat clearing out of the way, let’s get down to business. What to make of today’s report?
It’s hard to say…
On the one hand, 113,000 new jobs in January is a very disappointing number. During the fall we were creating many more jobs: 274K in November, 237K in October, 164K in September, 202K in August.
January’s number is consistent with the theory that the labor market is slowing down relative to the fall.
Adding significant evidence to that theory is the revision to December’s employment number. You’ll recall that in December, according to last month’s report, the economy added just 74,000 new jobs. Analysts told everyone to ignore the number: It’s a fluke! It will be revised away! It may still be, of course, and it was revised today…. to 75,000 new jobs. Dismal. (And a reminder to analysts: never ignore data.)
Seventy-five thousand in December and 113K in January suggest that the winter has been much slower than the fall. And what we want is for the labor market to get better, not worse.
On the other hand, the household survey — from which we get the unemployment rate; the jobs number come from a separate survey of businesses — shows a very impressive employment gain of 616,000. (This is without incorporating some of those technical changes I mentioned earlier. With the changes, employment gains were 638K.) That’s actually a very impressive number.
So what do you do with all this?
Like all new information, today’s report should change the way we think about the labor market. But not by much, given all the complications and conflicting information.
I continue to hold the view that the labor market is in a steady-but-much-too-slow recovery. I’m not ready to buy into the notion that things are getting worse than they were in the fall. But I’m more open to that interpretation today that I was yesterday.
I mentioned above that I would have more to say on extended unemployment benefits. They expired in late December. Many analysts expected that this would affect both labor force participation and employment in today’s report — with some of the long-term unemployed dropping out of the labor force, and others taking jobs they wouldn’t have taken if their benefits had continued — but that doesn’t seem to be the case from a quick read.
This makes sense if you get into the weeds of the data. Remember that the official definition classifies a worker as unemployed if he made specific efforts to find a job sometime during the four-week period ending with the week about which households are asked to report their labor market activity. The week in question was the third week in January. So folks who may drop out of the labor force because their benefits expired in late December but who were still looking for work in late December when their benefits expired would still be counted as unemployed in this morning’s report. We’ll have to wait to see whether the expiration of extended benefits leads to a large number of workers exiting the labor force.
Given that my view of the labor market hasn’t changed, my view on extending unemployment benefits hasn’t, either.
The Senate failed yesterday to pass a three-month extension of unemployment benefits for 1.7 million long-term unemployed workers. Fifty-nine senators, four of whom were Republicans, wanted to advance the extension to a vote. At 60 senators there would have been a vote, and the Senate would have passed the extension.
What broke down? The cost of the extension is $6 billion. Paying for the $6 billion — a relatively small sum — proved too great a challenge for the world’s greatest deliberate body.
If you think the economy is slowing due to weak jobs numbers in December and January, then that is all the more reason to extend unemployment benefits. If you think the labor market is still stuck in neutral, then that is all the more reason to extend unemployment benefits. If you want the long-term unemployed to stay attached to the labor force until the economy picks back up and they can find jobs, then that’s all the more reason to extend unemployment benefits. If you believe in the social safety net, and that workers who lost their job through no fault of their own only because they happened to be alive and working during a once-in-a-generation financial crisis and economic downturn, then that’s all the more reason to extend unemployment benefits.
Let’s extend unemployment benefits.
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