About That Labor Market

The editors of the Wall Street Journal are encouraged by the latest Bureau of Labor Statistics monthly unemployment situation report:

The U.S. labor market is proving to be remarkably resilient, which may be both good and bad news for the Federal Reserve. Employers added 517,000 jobs in January while the unemployment rate fell to a 53-year low of 3.4%, according to the Labor Department’s monthly report.

Recent jobs reports had signaled that hiring was slowing, especially in retail, manufacturing and warehousing as consumers spent less on goods. But the January report showed broad job growth, mostly in services, including leisure and hospitality (128,000), trade and transportation (63,000), healthcare (58,200), temporary services (25,900) and construction (25,000).

Information lost 5,000 jobs, which dovetails with layoffs in the tech industry. But most businesses continue to hire. The average workweek for private workers rose by 0.3 hours and overtime increased by 0.1 hours. As a result, average weekly earnings increased by 1.2% last month.

Wage growth seems to be slowing somewhat. Average hourly earnings increased by 0.3% last month and 4.4% over the past year. That means wages still aren’t keeping up with inflation, but they also aren’t evidence of a wage-price spiral.

but Mish Shedlock does a deep dive into it and isn’t as impressed:

• The divergence between jobs and employment continues for the tenth month but lessened in December of 2022 and January of 2023.
• The full time employment divergence is still huge.
• The divergences between jobs and employment date back to May.
• The BLS announced huge annual revisions in jobs and employment.
• Finally, even discounting the revisions, there is still a huge divergence between jobs and full time employment. We do not know how it evolved because the BLS doesn’t say.

with this important observation:

Please see revision details below because of the 894,000 rise in employment in January, 810,000 was due to annual revisions. And the BLS does not say what months were revised.

Fifteen years ago I used to report the monthly employment situation reports faithfully. When I began to understand just how they were constructed I realized that they were statistically suspect and not much could be derived from them. So I generally stopped reporting them. I want to remind my readers (both of them) that the BLS tends to bundle up a lot of errors in previous reporting and dump the errors into the report they just issued. I don’t believe that much can be inferred from the BLS empsit generally but particularly not this one.

Nowadays I go more by something like the “Mule Test”. When I was a kid down in the Ozarks they used to sell crude mule figurines with pieces of twine tacked to the hindquarters for a tail, captioned: “Mule’s tail dry: fair weather; mule’s tail wet: rain; mule’s tail frozen: cold; mule’s tale buring: hot; mule’s tail blows off: tornado”. If it feels like employment is good, it’s good. If it doesn’t, it isn’t.