Friday, January 10, 2014

Jobs Weaker Than Projected But Unemployment Rate Drops ... How Can That Be?

Breaking news: U.S. economy adds just 74,000 jobs in December:

"The U.S. added just 74,000 jobs in December to mark the smallest increase since the start of 2011, suggesting that the nation entered 2014 with less momentum than a raft of other economic indicators had signaled. The unemployment rate, meanwhile, fell to 6.7% from 7.0% - the lowest level since October 2008 - but the decline appeared to occur mainly because more people dropped out of the labor force. Economists surveyed by MarketWatch expected an increase of 193,000 nonfarm jobs, with unemployment holding steady at 7.0% in December. Retailers posted the biggest increase in hiring in December, adding 55,000 jobs, and manufacturers also boosted employment, the Labor Department said Friday. Yet hiring was weak across most other sectors, reversing the broad gains seen in November. Average hourly wages, meanwhile, rose 2 cents to $24.17 while the average workweek dipped 0.1 hour to 34.4 hours. The civilian participation rate fell two ticks to 62.8%, matching a 35-year low. The employment gain in November, meanwhile, was bumped up to 241,000 from a first read of 203,000. October's gain was unchanged at 200,000. The U.S. ended the year adding roughly the same number of workers as it did in 2012, based on the preliminary numbers."

My Quick Take

The monthly jobs created number just released is 74,000, much lower than the expected 200,000 number.

The unemployment rate just reported is 6.7%, much lower than the expected 7% number.

What gives? Other than probably bad numbers, more and more people are dropping out of the work force. Hence, a lower number of people working or looking for work means a smaller work force and lower unemployment rate.

The message is simple: watch the jobs created number over an extended period of time and don't focus on the reported monthly unemployment rate.

The economy remains in slow growth mode, albeit not as slow as it has been.

And jobs being created are too few, while more and more people are discouraged and not even looking for work.

Our labor force participation rate continues to decline, and that's not a good sign for the health of our economy either.

We'll take another look at this when the dust settles, but my guess is that we're in for a long but consistent period of improving economic conditions, even though the rate of improvement will be slower than we would like.

That's my quick take on the employment situation.

Thanks. Bob.

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