This morning’s January jobs number was disappointing. The economy created 113,000 net new jobs against a consensus among economists surveyed by Briefing.com of 175,000. The very, very disappointing December total of 74,000 was revised upward, but only by a tiny 1,000 jobs.
And yet the U.S. stock market is up strongly today. As of 2:30 p.m. New York time the Dow Jones Industrial Average was up 0.93% and the Standard & Poor’s 500 was up 1.15%.
It’s important to try to figure out why. Even if you conclude the market is wrong, you need to know what it is thinking since it’s that thinking that drives stock prices in the short run.
Here’s my survey of possible reasons:
- Relief. After December’s 75,000, January’s 113,000 counts as “not a disaster.” Private payrolls did climb 142,000 in January. And the unemployment rate continued to fall going to 6.6% in January from 6.7% in December. The average workweek remained at 34.4 hours and hourly earnings increased by 0.2%, leading to an increase in income.
- It’s just the weather. January’s very, very cold weather is getting blamed for a lot of economic weakness including lower auto sales so why not the overall jobs total too? In this theory the cold weather is producing current economic weakness, but since the underlying economic trend is still strong, the U.S. economy will show a strong period of makeup growth in coming months. In other words, the market is looking past the January data—essentially saying it doesn’t count because of the weather—to stronger growth n February and beyond.
- The jobs weakness will slow the Fed’s taper—or at least not accelerate it. If the economy is indeed as weak as the December and January jobs numbers indicate, then the Fed might pause (I don’t see many on Wall Street thinking this) or at least not accelerate (a more common position) the rate at which it is reducing its purchases of Treasuries and mortgage-backed securities. Already the Fed has gone from $85 billion a month to $65 billion as of its January meeting. The market might be thinking that the Fed will stick here for a while—and a while might be relatively long since there is no meeting of the Fed’s Open Market Committee until March 20.
- The annual revisions to the size of the U.S. workforce outweigh the weakness in January’s data. The number of employed rose by 638,000 in this annual revision from the number reported in December’s monthly survey. That resulted in a drop in what’s called the full unemployment rate to 12.7% in January from 13.1% in December. (The full unemployment rate counts workers who have given up looking for work and those who have part time jobs but who would like full time work.)
What “reasons” gets my vote as most likely to be influencing the market’s thinking today?
Relief and it’s just the weather. After the recent drop in U.S. stocks “not a disaster” is enough to encourage some buying. Add in those who are willing to throw out the January weakness as just the weather and I think you’ve got enough buy on the dip buyers to drive U.S. stocks higher today.
I don’t think anybody really thinks that this data—which the Fed had seen in some form at the time of its January decision to increase the taper—is likely to change Fed policy on continuing to reduce its bond buying. And I don’t think most of Wall Street cares a hoot about the annual benchmark revisions.
If my guess on the market’s thinking is right, I’d add an important caveat: the market could well be wrong. Today’s jobs report seems to undercut, rather than support, the it’s the weather argument. The construction sector added 48,000 jobs in January. That’s a much bigger increase than I’d expect if cold weather had played a big role in slowing job growth.
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