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January Job Gains Were Right On Trend, But Not Enough To Shrink Unemployment and Stop Fed Printing

by Lee Adler, Wall Street Examiner

This post is excerpted from the permanent Employment Charts page, which includes numerous additional charts and analysis on key employment metrics.

The BLS today reported a seasonally adjusted (SA) gain of 157,000 in January nonfarm payrolls. While the number fell short of consensus expectations of 180,000, it’s mainly due to the fact that the BLS packed most of the gains into upward revisions for December and November. These revisions added 147,000 jobs to the base of the comparison. The total increase of 304,000 for the 3 months was consistent with numbers I had posted yesterday on Twitter, based on a simple extrapolation of the annual rate of increase in November and December.

First time claims in January had been right on trend and payrolls had trended up about 1.4% year over year in both November and December. A 1.4% annual gain in January against the old unrevised data would translated to a gain of around 300,000. Instead of putting all of that in the January number, the BLS revised November up by 86,000 and December by 41,000.

The headline SA number compared with a decline of 2.84 million in the actual, not seasonally adjusted number (NSA). Don’t be alarmed by that. January is always a huge down month. Last year the January NSA decline was 2.64 million. In 2011, it was 2.86 million. The 10 year average decline for January 2003 to 2012 was also 2.86 million. This year’s number was better than 5 of the past 10 years, including the recession years of 2008 and 2009, which had outsized declines, but it was not as good as 2003-07. It was therefore only so-so. But the important thing was that the trend remains intact, neither accelerating nor decelerating.

There’s always a problem with the seasonally adjusted fictional number. The BLS will revise this month’s number, not only next month and the month after, but every year for the next 5 years as it hones the SA number to include a look back to pinpoint where this month’s number actually should have been, as it works toward making the idealized seasonally adjusted curve fit the actual data. It applies a major revision in February each year when the final benchmark revisions for the previous year is applied. Even with this revision, the current SA number is only halfway through the iteration process to the final number that the BLS will assign to this month 5 years from now.

The BLS statisticians know that the SA number is ginned up and it has publicized its statistical weaknesses, but the economic establishment and mainstream media have ignored the warnings for years. We need to look at the best data we can find to know the truth about what’s going on. The actual NSA data, while it is an estimate based on a tiny survey sample, is much closer to reality than the seasonally adjusted abstract impressionism that is projected from the NSA data. The NSA number is not massaged to represent an idealized curve with seasonal tendencies filtered out. It’s the real thing.

Once again this month, the actual data was smack on the trend of the past year. The number of jobs has been growing at virtually the same rate for the past 17 months, around 1.5% per year, give or take a tenth or two. There’s nothing profound or new here, and therefore no reason to think that the markets should change course. Nor is there any reason to think that the Fed will change policy any time soon. The growth in jobs is tracking population growth, therefore there is unlikely to be much reduction in the unemployment rate, if any. The guessing that the Fed will end QE any time soon is just a guess, and it’s just what the Fed wants speculators to be thinking about, lest they go wild driving gold and energy prices higher.

Non Farm Payrolls NSA - Click to enlarge
Non Farm Payrolls NSA – Click to enlarge

The numbers above come from the BLS the Current Employment Statistics Survey or CES, a survey of business establishments. The BLS also does a survey of households called the Current Population Survey (CPS), which generally produces different numbers than the CES, but trends in the same direction.

January is a month in which the actual NSA number also usually decreases in the CPS. This year the number of persons reported as employed in January fell by 1.45 million from December. That compares with a drop of 737,000 in January 2012 and a decline of 1.56 million in 2011. The average change in January for the previous 10 years was a decline of 1.52 million. That number was skewed by a terrible number in 2009. Without that, the average change would have been closer to -1.4 million Relative to that, this year was average. It was better than 6 of the 10 prior years.

The year over year gain in total employment under the CPS was 1.67 million or 1.2%. Over the prior 12 months the annual rate of change had fluctuated between 1.1% and 2.2%. This number was at the low end of that range.

I like to focus on full time rather than total employment. Part time jobs are nice, and for many that hold them, they are a lifeline, but the important metric here is full time jobs. Without those, we’re dead.

Full time employment in the CPS fell by 1.21 million in January. January is always a big down month for full time jobs. Last year full time jobs fell by 1.17 million in January, and in 2011 they dropped by 834,000. The 10 year average decline in full time jobs for January was 1.38 million, again skewed by disastrous numbers in 2008-2009. Outside of those two years, most years saw a decline of 1.0 to 1.3 million. This year’s performance was consistent with that.

Click to enlarge

The chart above gives some perspective on how far total employment and full time employment fell in the first stage of the 2008-09 depression, and how much they have yet to recover. Just to give you an idea of how ridiculous the SA data can be, the current level on SA full time employment is now above the highest levels reached in the years 2000-01 for SA data. However, the actual data, NSA, has never quite reached, let alone exceeded, the highest levels of 2000 and 2001.

June or July is usually the peak month for both total and full time employment. In 2012 the numbers broke last July’s level in April. The economy was a couple months ahead of schedule in affirming the uptrend in jobs. That uptrend is still firmly entrenched. The gains accelerated in 2012 versus 2011, but throughout 2012 the rate of gain has stabilized around a 2% annual rate. With QE3 in late 2012, the Fed began adding more fuel to an engine that was running at its natural capacity. It will probably now overheat with the addition of QE4 in January 2013.

Click to enlarge

Stock market performance is at the mercy of the Fed, and employment typically reflects them both. While at times there’s a lag, the linkage is undeniable. Over the past year, the SOMA has not reflected the impact of the Fed’s MBS purchases from the Primary Dealers, a subject which I cover in depth weekly in the Fed Reports. The graph of Fed purchases from the Primary Dealers has been rising steadily since last September. By cashing out the dealers via these MBS buys, the Fed enables the dealers to buy more Treasuries. The next week, the Treasury spends that cash. That’s how Treasury debt is immediately transformed into economic activity and slow and steady job creation. This is the trickle down effect of the Fed’s securities purchases at work.

With QE3, the Fed is adding even more cash to power that trend. The first settlements of the new MBS purchases in September took place in the week of November 14-20. The next round of cash settlements took place from December 12-20, and then January 14-22. The Fed’s QE 4 Treasury purchases began in January, and settle daily. These and the residual economic effects of the January MBS settlements should show up in next month’s jobs data.

This is activity that is sustained only by increasing government debt, and only as long as the Treasury Ponzi remains intact. The game should continue until inflation forces the Fed to pick up the marbles.

The chart below shows that while the number of jobs is growing, the employment to population ratio has barely gained since the recovery began in 2009. Jobs growth is only keeping pace with population growth. Top line growth may satisfy the markets, but it is doing next to nothing to help the massive army of people who have been and continue to be unemployed. Their numbers are growing right along with the number of people who do have jobs. It is a sad state of affairs for the US, but markets don’t care about that. They respond to the amount of cash in dealer accounts, which, thanks to the Fed, continues to grow.

Click to enlarge

Because jobs are only growing at about the rate of population growth, that means that the unemployment rate will remain sticky in the 7.5-8% range, well above the Fed’s target rate for unemployment. That means that the Fed will keep printing, and stocks should keep rising in bubble blowoff mode. At the same time, the distortions and misallocation of capital that result will continue to grow. The unintended negative consequences that accrue from that over time will ultimately force the Fed to stop printing, which is likely to lead to another disorderly dislocation in the financial markets and economy, which this time the Fed may be unable to paper over.

Permanent Employment Charts page
Follow my comments on the markets and economy in real time @Lee_Adler on Twitter!

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