I think tomorrow’s jobs number for January is likely to have a big effect on the markets. But I’m not sure we’ll really learn much of anything about the economy because of uncertainties in the data.
I know what the financial markets want to hear—that the paltry 74,000 jobs added in December was an anomaly, that the initial December total has been revised upwards, and that the January total at least matches the consensus forecast of economists surveyed by Briefing.com of 175,000 net new jobs
Those results would argue that the strength in today’s initial claims for unemployment—a decline of 20,000 in the weekly total for the first drop in three weeks—and the improvement in the Purchasing Managers Index for the service sector to 54 in January from 53 in December are truer indications of the strength in the U.S. economy than the drop in the Purchasing Manager’s Index for manufacturing or disappointing retail sales numbers.
But although I think that kind of news would move global stocks higher—and disappointing numbers would push them lower—I’m not sure that the data will mean as much—one way or the other—as the market wants in its current search for direction.
There’s the expiration of unemployment benefits for 1.3 million workers on January 1. Evidence from similar expirations at the state level suggests that some workers will simply drop out of the workforce in response (lowering the participation rate and the official unemployment rate) and that some will take a job, any job, because they have to eat, pay rent, etc.
There are the typical seasonal adjustment issues as government statisticians revise the data to account for the effects of holiday hiring. The adjustments use average seasonal effects and since no season is actually average, the adjustments can throw the figures way off. (Seasonal adjustments don’t try to account for weather so these numbers will not be tweaked for January’s cold spell.
And finally, this month brings the annual revisions to the data to reflect changes in the working population and in the businesses that employ them. Those changes will make it hard to compare January jobs with the December numbers.
Even if—or maybe especially if—the jobs numbers move the financial markets tomorrow, be sure to take a look beneath the headlines.
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