Summary: The monthly job numbers tell us much, but the headline number about which the press obsesses tells us almost nothing. This post looks at the trends that shape America as shown in this report, and especially the surprises.
Journalists and economists ask if we are in a recession. The tabloid investment media screams “yes”. Last week Professor James Hamilton provided a clear answer: no. It’s the wrong question. We should be like sailors, scanning the horizon to see the storm before it hits, taking incremental steps to prepare as the odds of a storm grow – eventually battening down the hatches and reefing the sails — before it’s too late to do so.
Macroeconomic data provides our best warnings of economic storms. The monthly payroll report — released today for January — gets massive attention, but we must dig to get the useful insights.
The headline job number is too volatile and too heavily revised for use (also, it is a lagging indicator), but the trend in the percent change year over year NSA tells us much – the rate of growth slows rapidly in the year before a recession, hence months before stocks roll over. Payroll growth peaked in February 2015 at 2.3%, steadily falling to 1.9% in January.
Let’s look below the headline number at some of the weaker sectors. Such as manufacturing, so far the center of the downturn. Manufacturing added 29,000 jobs in January, the second monthly gain and the largest since November 2014. What does this mean? I have no idea. It is an anomaly. Economists and journalists seldom point to anomalies in the data, although that should be a priority. Anomalies point to changes in trends and errors in our beliefs.