By: John Crudele
February 6, 2014
Did the labor market beat the January jinx?
Oh, you didn’t know the month was jinxed? Well neither does Wall Street, which is betting the Labor Department will report relatively strong growth of about 182,000 jobs on Friday.
Meanwhile, ADP reported 175,000 private-sector jobs on Wednesday — or 10,000 fewer than analysts thought.
Well, as readers of this column will undoubtedly suspect, I’m taking up a position on the other side of this bet. I’ll explain why in a few paragraphs. But first, let’s build up a little suspense.
You might recall that the December data was awful — just 74,000 additional jobs even though experts had been predicting twice that amount. That number really shook up the nation’s politicians.
Just five trading days prior to that awful report, Wall Street took the equity markets to new heights to finish 2013, as part of the “window dressing” phenomenon, which allows fund managers to report bloated year-end returns for their clients
At the time, Wall Street was in its bad-news-is-good-news mode. It reckoned (wrongly) that any weakness in the economy would stall the Federal Reserve’s move to cut back its quantitative easing money-printing experiment.
In December, of course, the Fed still tapered the amount of bonds it was purchasing under QE by $10 billion a month. And at its January meeting last week, the Fed reduced the amount by another $10 billion a month. It’s now purchasing “only” $65 billion a month.
What’s changed in 2014?
Bad news is no longer good. Bad is bad. A weak employment report tomorrow probably won’t cause the Fed to reverse its position on tapering QE.
Now, here’s my side of the bet on the jobs number. I’ll also get into why Wall Street, even though it has switched to bad-is-bad mode, shouldn’t get very shaken if my prediction comes true.
First off, January has historically been a bad month for job growth. You are probably thinking this is pretty obvious, with outdoor workers left out in the cold and post-holiday spending on the wane.
But all those things shouldn’t matter because the Labor Department seasonally adjusts its figures. In other words, the bad weather and lack of hiring after Christmas should already be factored out of by Labor’s computers because it recurs every year.
Something else has to be making the January numbers weak. But before I explain what I think it is, let me first give you a taste of the jinxed January trend.
Last January, the Labor Department reported the economy added 148,000 jobs. But in the first month of 2011, growth was only 69,000. Then, the previous January, the economy lost 13,000 jobs, which was much better than the 794,000 jobs we lost in 2009. Even in 2008, January job growth was only 14,000.
Careful readers will notice I left out January 2012, which had an inexplicable gain of a whopping 311,000 jobs that nobody could really explain then or now, except to note that, in 10 short months, the nation would be on the eve of a presidential election.
And while I don’t want to go too far down memory lane, Januarys before 2008 typically had decent job growth.
So will Friday’s number be the exception like two years ago? Did jobs that didn’t appear in December suddenly pop up in January?
Or will this January’s figure stink like most of the others.
I’m not accustomed to apologizing for bad economic data. I continue to believe that the US economy is performing poorly, that job growth is weak, unemployment high despite the recent statistics to the contrary and that someone ought to do something about these problems. (I know, President Obama is: he’s now talking about the economy more than before.)
But here’s why January is usually doomed. And it’s a fact that nobody, despite my best efforts in this space, has picked up on.
There’s something called the birth-death model that the Labor Department uses to estimate the number of jobs being created (or lost, in the death part) by companies that are too small to be caught in government surveys.
This model usually adds jobs to the month count. And in the springtime the figure is usually substantial — 193,000, 205,000 and 132,000 last April, May and June, respectively. Those guesses usually strengthen job growth during springtime. (Remember, the better weather shouldn’t play a part because the Labor Department seasonally adjusts the numbers.)
But, historically, the birth-death model kills a huge number of jobs in January: 314,000 last year; 367,000 in 2012 and 339,000 in 2011. Those reductions aren’t done to the bottom line, or reflected in the number you see in the headlines.
Yet even though these reductions are made before seasonal adjustments, they still have an impact.
So, that’s why I think Friday’s number will be disappointing. Unless, of course, a miracle happens like it did in January 2012. But then, Hillary Clinton’s Iowa Caucus isn’t until January 2016.
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