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Don't Get Too Upset Over Volatile Monthly Jobs Data

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Friday, 08 March 2019 04:55 PM Current | Bio | Archive

INDICATOR: February Employment Report and January Housing Starts

KEY DATA: Payrolls: +20,000; Private: +25,000; Construction: -31,000; Unemployment Rate: 3.8% (-0.2 percentage point); Wages: +0.4%/ Starts: +18.6%; Permits: +1.4%

IN A NUTSHELL: “Given the insane volatility in the data, it is wise not to get too up or down with any one number.”

WHAT IT MEANS: For a month now I have been commenting that the data are crazy and today was no exception. Let’s start with the totally out of bounds jobs report. After a ridiculously high January increase, which got revised upward even more, we got a way too low February gain. No, the sky has not fallen. As I argued last month, the economy hasn’t turned into a lean, mean jobs machine. The average job gain for the past three months was 186,000, pretty much what was expected, so all we have is crazy volatility in the numbers. The details show that. The biggest swing came in construction, which posted a massive decline. That was because there was a massive increase in January. You don’t expect construction to boom in the cold of winter and it looks like it didn’t. Big deal. Retailers seemingly rediscovered the idea of hiring in January only to fall back to cutting workers in February. Surprised? No. Manufacturers had been adding workers like crazy, despite what is a clear moderation in growth, so the modest gain in February should not be a shock. Basically, the report was simply a balancing of what were some outsized payroll increases in January and to some extent December as well.

There was some good news for workers, though once again, let’s see what the next month brings. Wages surged and the rise over the year was the largest in a decade. As for the decline in the unemployment rate, it looks like workers furloughed due to the partial shutdown came back onto to the payrolls and that was the major factor in that decline. The participation rate was flat and has stayed in a fairly tight range the past five years. The so-call “real” or what I call the “really stupid” unemployment rate dropped sharply and is nearing the lowest level on record.

As for housing, who knows really what is going on? Starts surged in January, despite the insanely cold weather. Really? It looks like the sharp decline in December was the aberration and the January level is back to the rate of new construction we had been seeing. Indeed, if you look at the permit levels, they have been fairly stable, indicating that housing is neither booming nor faltering. Starts and permits are coming more in line, which was expected.

MARKETS AND FED POLICY IMPLICATIONS: I warned yesterday that the risk in the jobs number was to the downside. Of course, I didn’t expect it to be that much lower. But all this report did was remind people that the economy is decelerating and a moderating economy doesn’t create a massive number of new positions. We can see from the three-month average that we are where we should be or maybe even a little high. I expect job gains to run closer to 175,000 this spring and slowly decelerate from there. That would still be enough to drive down the unemployment rate and keep wage gains accelerating. How investors will see this is another story. Those people who actually believed the January report probably are also overreacting to the February disappointment. They are roller coaster junkies and you cannot do much about them. Unfortunately, some of them work at the Fed and this number is likely to confirm the belief that nothing needs to be done. That is true only if you think the current fed funds rate provides enough ammunition to fight the next economic slowdown. I don’t. But after the “rethinking” in December, positioning to move rates to the level where the armory is full would be considered bizarre. Regardless, it will take several months of new data before we get a clearer picture of the extent of the slowdown, so assume the Fed will stay with cautious as the watchword.

Joel L. Naroff is the president and founder of Naroff Economic Advisors, a strategic economic consulting firm.

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Given the insane volatility in the data, it is wise not to get too up or down with any one number.
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Friday, 08 March 2019 04:55 PM
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