The January job market report showed that the unemployment rate declined to 6.6% (down from 6.7%) and the economy added 113,000 jobs (142,000 in the private sector). As usual, there were mixed messages in the report, but it was somewhat disappointing. One question that keeps coming up is how much weather is affecting the data (though the data is seasonally adjusted, this has not been a normal winter). However, one would expect that construction is more sensitive to the weather than most other industries and it added 48,000 jobs in January (accounting for more than one-third of the job gains in the private sector). If weather was a major issue in January, you would think construction would have lost jobs. What I think happened is that weather affected construction in December and there was a rebound in January; construction added 26,000 jobs over the last two months (13,000 per month), which is probably a more accurate gauge of construction employment.
While gains in construction employment was artificially high in January, retail trade employment was artificially low. Why do I say that? Employment in retail trade - sporting goods, hobby, book, and music stores fell by 22,300 in January after rising 21,500 in the previous quarter (resulting in little change since the late summer).
Which sector is responsible for slower employment growth in recent months? The private sector averaged about 200,000 new jobs per month from Nov 2012-Nov 2013, but only 115,000/month in the last two months. Professional & Businesses services had average gains of 58,000 jobs per month from Nov 2012-Nov 2013, but only 20,000 per month in the last two months; health care added 20,000/month from Nov 2012-Nov 2013, but only 1,000/month in the last 2 months. Together, they account for 57,000 out of the 85,000 fewer jobs per month (about two-thirds of the slowdown in employment gains). It'll be interesting to watch this trend in the coming months (hard to explain this slowdown on the weather).
The household survey showed a decline in the unemployment rate accompanied by a increase in the participation rate, which is a good combination. The household survey tends to be more volatile than the establishment survey (used to estimate employment gains). For example, the survey showed an increase in the labor force of more than half a million people in January after a similar decline in the fourth quarter, resulting in little change since September. Over the last year (Jan 13-Jan 14), the labor force declined by about 240,000 people, resulting in a decline in the participation rate from 63.6% to 63%. Yes, here it comes... If the participation rate had remained constant (at 63.6%), the unemployment rate would be 7.5% instead of 6.6% (note: it was 7.9% in Jan 2013).
What are the key takeaways from the report? The labor market continues to struggle, with employment gains slowing in recent months, independent of the weather. Two months do not make a trend, but possibly a start of a trend. It will be interesting to see if next month's report confirms the slowdown in employment in health care and professional/business services.
