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The Sky Is Falling - Only 74,000 Jobs Created

This is the most misunderstood report I can think of. Literally everyone believes:

  1. it is accurate;
  2. it is a reflection on the economy.

It is not accurate. Why do you think the BLS divides the report into two parts - household and establishment? These are two very different looks at the employment situation - and the data between these two measurements are very different. From the BLS on the establishment survey:

For example, the confidence interval for the monthly change in total nonfarm employment from the establishment survey is on the order of plus or minus 90,000.

WoW - a 90,000 window is big enough to drive a truck through. It literally means that last month's 241,000 and this month's 74,000 could actually be the same.

And the household survey said the economy gained 143,000 jobs in December using an entirely different methodology.

It is NOT a reflection of the economy. Jobs growth is determined by economic pressures developed over the previous six months. Econintersect's employment index has done a good job in guessing the trend lines of employment - and the trends are down but should change in early 2014.

Employment is a rear view mirror - and everyone is looking for forward vision on where the economy is going. Why does everyone fixate on this highly inaccurate report?

Finally, consider that in the real world - movement is not in straight lines. Data goes up, data goes down. But one needs to step back and average the data to see where it is going. If you would like to learn more about the trends, here is my analysis on the December Jobs Report.

The Econintersect economic forecast for January 2013 predicted a slowing economic growth after several months of increasing growth. What this forecast cannot see is the effect of Obamacare - but slowing of growth in this forecast was primarily the result of the business sector.

The ECRI WLI growth index value has been weakly in positive territory for over four months - but in a noticeable improvement trend. The index is indicating the economy six month from today will be slightly better than it is today.

Current ECRI WLI Growth Index

Initial unemployment claims went from 339,000 (reported last week) to 330,000 this week. Historically, claims exceeding 400,000 per week usually occur when employment gains are less than the workforce growth, resulting in an increasing unemployment rate. The real gauge - the 4 week moving average - improved from 357,250 (reported last week) to 349,000. Because of the noise (week-to-week movements from abnormal events AND the backward revisions to previous weeks releases), the 4-week average remains the reliable gauge.

Weekly Initial Unemployment Claims - 4 Week Average - Seasonally Adjusted - 2011 (red line), 2012 (green line), 2013 (blue line), 2014 (orange line)

Bankruptcies this Week: none

For a complete look at our analysis this week - click here.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.