The disappointing January jobs report released Friday was seen as “strike two” for the U.S. economy — the second straight month that gains were far weaker than expected, raising further doubts about what had appeared to be a steady and strengthening labor market recovery. But the usual caveat against reading too much into any one month’s numbers may apply even more strongly to the new data.
The Bureau of Labor Statistics said that economy added just 113,000 jobs last month, and the gains for December were revised upward by just 1,000 to a still-meager 75,000. With the weak headline number, a possible one-month blip started to resemble a more worrisome trend, especially since the data left economists divided on just how much blame should be placed on the harsh winter weather.
Related: Weak Jobs Report Produces More Questions Than Answers
Another disappointing jobs report next month could be seen as “strike three” — a curveball that might cause the Fed to pause its planned reductions in monthly asset purchases — but extrapolating from the last two reports may be a mistake. First, economists pointed to a number of silver linings in the numbers, including a drop in the unemployment rate to 6.6 percent — and for “the right reasons,” with the size of the labor force swelling based on the Bureau of Labor Statistics’ survey of households.
Second, even if weather itself wasn’t a key factor, seasonal adjustments made by the Bureau of Labor Statistics may have been. Those adjustments are a complicated but crucial aspect of the final data, and they can be very imprecise at this time of year. Economists Michelle Meyer and Lisa Berlin of Bank of America Merrill Lynch explain:
“By the time economic data are released to the public, they have undergone a vigorous adjustment process. Part of the smoothing is to remove seasonality, which includes controlling for the impact of normal weather patterns, holidays and other special events such as the start of the school season,” they write. “Of course, this is imperfect and, when there is abnormal weather, the seasonal adjustment will not capture it in real time.”
Ian Shepherdson, chief economist at Pantheon Macroeconomics, said the seasonal adjustment might have made a dramatic difference in last month’s numbers. “The BLS imposed a much more severe seasonal adjustment on January payrolls this year compared to last, or indeed compared to any year since 2009,” Shepherdson said in an email to clients. “Had the seasonal factor for 2013 been re-used, the increase in January private payrolls would have been 265K rather than 142K, and no-one would be speculating about the Fed pausing its program of tapering at the next FOMC meeting, on March 18/19.”