Seasonal Adjustments Cloud Jobs Report
- The January Employment Report missed expectations of 105,000 new jobs with only 49,000 jobs created. In addition, the prior two months were adjusted lower with 159,000 less jobs than initially reported. December alone saw jobs drop from an initially reported –140,000 to –227,000. January is a notoriously difficult month to forecast with holiday-related staffing cuts in many retail and transportation businesses. For example, over the past ten years January has averaged 2.9 million job losses before seasonal adjustments. In normal times the adjustment is pretty accurate but in our pandemic world it’s more of a crap shoot. For example, Bloomberg’s estimates for the headline number ranged from a loss of 250,000 jobs to an increase of 400,000, a fairly wide range. This is all to say the January report, in the time of COVID-19, needs to be taken with a grain of salt given the large seasonal adjustment in these unusual times. With that caveat, the unemployment rate dipped four-tenths to 6.3% besting the 6.7% pre-release expectation but the labor force participation rate (labor force/civilian population) moved in the wrong direction dipping to 61.4% after two straight months at 61.5%. It was 63.3% a year ago, prior to the pandemic hitting. Annual benchmarking resulted in the labor force falling by 406,000 and unemployed persons by 606,000. However, 10.13 million people remain unemployed, more than 5 million more than pre-pandemic so a long climb back to full employment remains.
- For the month, 49,000 jobs were created versus an expectation of 105,000. In addition, the prior two months were adjusted lower by 159,000 jobs with December alone adjusted from –140,000 jobs lost to –227,000. As mentioned above, January is a problematic month given the large seasonal adjustments that are made to the numbers. For example, over the last ten years, January has averaged unadjusted 2.9 million job losses as holiday-related positions are cut. In normal times the seasonal adjustment does a pretty good job of accounting for this feature. Given the unique environment brought on by the pandemic the normal seasonal adjustments are likely to be more a shot in the dark. So make judgments off these numbers carefully. The services sector as a whole gained just 10,000 jobs with professional/business services adding 97,000 and temporary help adding 80,900. Surprisingly, health care lost 40,800 jobs and leisure/hospitality lost 61,000. Perhaps that’s the seasonal adjustments creating some havoc? Goods-producing jobs added just 6,000 for the month which is also surprising given the strong ISM numbers and other manufacturing-related reports.
- The unemployment rate dropped four-tenths to 6.3% from 6.7% but that drop came mostly from annual benchmarking changes which lowered the labor force denominator. It is the lowest rate since the pandemic hit but recall the rate was 3.5% this time year ago. Fed Chair Powell has laid out one of the three criteria to lifting the fed funds rate is a return to full employment. If we use that 3.5% rate, or close to it, as a marker for full employment we’re still 2.8% away. And with job growth unsteady at best in recent months expect a continued push to get that additional stimulus bill through Congress. The Household Survey—which is used to generate the various employment ratios— found unemployed persons fell by 606,000 to 10.130 million. The labor force participation rate (labor force/civilian population) dipped a tenth to 61.4%. It was 63.3% a year ago. So long-term damage to the labor force remains a story and something the Fed will want to see improve before unwinding monetary accommodation.
Initial Jobless Claims Starting to Move Lower Again
Initial jobless claims first fell below 1.0 million four month’s ago. Since then the reduction in claims has been more grudging and that stubborn plateauing in claims led to some of the slowing in job gains in recent months. In the last few weeks, however, the claims numbers have been starting to fall again which is good news for those people having found or held onto jobs. The latest week’s claims number was 779,000 versus 812,000 the week prior and better than the 833,000 forecast. The drop in claims is the lowest since the end of November when the numbers started to climb on the back of increasing virus case counts and renewed shutdowns. The climb in claims around year-end peaked at 927,000 on January 8 but they have been falling every week since, albeit slowly but it does seem to signal a new trend, as long as virus cases continue to trend lower as well.
The Dollar and TIPs Breakeven Rates
There’s been a lot made of the increasing TIPs breakeven rates (blue line) since the lockdown-induced panic of March and April. The initial move higher can be attributed to the weakening US dollar while the latest moves are more to do with the idea that Stimulus 2.0 and the spreading vaccinations will goose the economy higher taking inflation with it. Also, with a Dem-controlled government a third stimulus seems likely. One pillar of breakeven strength, however, seems to be in question. As the graph shows the dollar (white line) has started to rebound (see the red circle), and if that continues a strengthening dollar will force a correction in the one-way trend in breakeven rates and that may slow the upward trend in Treasury yields as well.
|Treasury Curve||Today||Chg Last Wk.||LIBOR Rates||Today||Chg Last Wk.||FF/Prime||Rate||Swap Rates||Rate|
|3 Month||0.03%||-0.02%||1 Mo LIBOR||0.11%||-0.01%||FF Target Rate||0.00%-0.25%||3 Year||0.282%|
|6 Month||0.04%||-0.02%||3 Mo LIBOR||0.20%||-0.01%||Prime Rate||3.25%||5 Year||0.584%|
|2 Year||0.11%||Unch||6 Mo LIBOR||0.22%||-0.01%||IOER||0.10%||10 Year||1.232%|
|10 Year||1.15%||+0.08%||12 Mo LIBOR||0.33%||Unch||SOFR||0.05%|
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