First, the 4Q GDP growth rate comes in at 5.7%, and was seriously downplayed.
Now, we have unemployment, according to BLS figures, coming in at a quite unexpected 9.7%, which nobody predicted.
The stock market continues its nosedive.
Most economists, including yours truly, expected unemployment to come in at 10%, if not slightly worse. Face it. This number is a pleasant surprise, when viewed with other data from the labor market. Coupled with the preliminary 4Q GDP growth number, we have significant indications that the economy is in fact improving, no matter how much that defeats the expectations of many.
However, there is a serious cloud over this new unemployment number. The Bureau of Labor Statistics (BLS) changed horses on us in mid-stream and in several regards. The changes generate uncertainty and fuels the tiresome debate about whether we have a real recovery or not.
The lesser part of what happened is the BLS revised the earlier jobs number for December, with the result being to show the economy lost 150,000 jobs in December instead of the 85,000 initially reported. The current figure for January is different. It is 20,000 jobs lost... far less. These jobs number come from the BLS’ business establishments survey of about 400,000 businesses.
The unemployment number comes from a different source: the BLS household survey, a monthly survey of about 60,000 households. However, there were changes there, too.
Here is what the BLS says about changes in the two surveys: "In addition, establishment survey data have been revised as a result of the annual benchmarking process and the updating of seasonal adjustment factors. Also, household survey data for January 2010 reflect updated population estimates."
The unemployment rate comes from the household survey, a monthly survey of about 60,000 households. The jobs number comes from the establishment survey, a sample of about 400,000 business establishments nationwide. Over longer time frames, the two numbers are more consistent. For January, they diverge.
The establishment survey showed a loss of 20,000 payroll jobs in January which is a marked improvement over December, but the household survey showed an increase in the employment level of 541,000, for the new 9.7% unemployment rate.
The troublesome factor is the household survey reflects this updated population estimate, which in all likelihood reduces the confidence level of the sample size used in the household survey. It may also impact the denominator, numerator or both of the unemployment figure. It is hard for me to say. The short of it is there is a cloud over the number. However, if we look at the jobs data, there is improvement in that the rate of drop in the number of jobs has fallen substantially.
Under both the new and the old system, I suspect that what we have nonetheless is a small drop in the unemployment rate for January. But it is criminal for the BLS to muddy the waters the way it has, without a good comparative explanation. It fosters distrust.
The economist who came the closest to predicting the new unemployment figure was Carl Riccadonna at Deutsche Bank, with a figure of 9.8%. As Mr. Riccadonna sees it, “Companies just can’t meet demand requirements with their existing labor force, so they have to increase the number of workers. This report does seem to indicate the economy is moving in the right direction.” I tend to agree.
Indeed, this is in fact more evidence of a V-shaped recovery than not, as unlikely as that seems to be. At some point, our prejudices and misconceptions have to give way to the data, mine included. I remain skeptical, but that is my natural mental posture anyway. I'm a bit of a disbeliever, like the old saw has it for those from Missouri.
And some economic improvement seems not just limited to us. Capital spending in Europe is also on the upswing. As one commentator put it, the European data show a capital spending up trend that is hard to deny. Too, most countries report that their economic momentum is picking up, so the improvement is not limited just to the U.S.
Other data indicate as well that conditions in the labor market are improving. Contrary to expectations, the U.S., factory payrolls figure increased 11,000 in January, a bigger jump than seen for many years. The median forecast called for a drop of 20,000. That is a 30,000 person difference, which is significant. It should be noted however, that government payrolls dropped by 8,000 (a development that might make many cheer were they able to believe it was permanent). The payroll pick up was largely in manufacturing where capital spending is also improving.
Comparably important as the drop in the unemployment rate, factories report a modest increase in the length of the workweek. Too, temporary workers grew by 52,000 which is quite significant. Also, the overall American workweek lengthened. These are significant collateral developments that portend future improvement in the unemployment rate, being precursors of the rate.
The truth is, I believe, notwithstanding the BLS mess, things are picking up a bit not only in the labor market, but also in the U.S. economy.
Disclosure: none relevant
