A hullabaloo broke out on February 3 after the BLS released its jobs report that indicated that a surprisingly robust 243,000 jobs were created in January, and that the unemployment rate had dropped to an even more surprising 8.3%. Cynics, academics, BLS heretics, BLS true believers, hype mongers, and politicians of all stripes waged a veritable media battle over these numbers that President Obama serenely trotted out as validation of his policies. Even Rush Limbaugh jumped into the fray. Rarely, if ever, had BLS numbers caused so much public disagreement—and scorn. But that’s history. Now we’re in February, and unemployment, after a year of fairly consistent improvement, is suddenly showing a sharp deterioration.
On Friday, Gallup’s mid-month unemployment reading, which covers the preceding 30 days, jumped from 8.3% in mid-January, the low point since the financial crisis, to 9.0%. An astounding increase. And its Job Creation Index confirmed that trend, dropping from +16 in January to +13 in February.
Worse, 10% of the employees in mid-February were part timers in search of full-time jobs, though down a tad from January’s of 10.1%, the all-time worst level in Gallup’s history! Underemployment—a combination of the unemployed and part-timers who are looking for a full-time job—jumped to 19% from the mid-January reading of 18.1%. While Gallup’s unemployment reading has improved steadily over the course of 2011, the underemployment reading has simply gotten worse.
Gallup’s mid-month reading has been a good predictor of the non-farm payrolls report that the BLS releases two weeks later on the first Friday of the following month. For example, Gallup’s mid-January reading improved to 8.3%, in line with what the BLS would report two weeks later (causing the above hullabaloo). Unlike the BLS, Gallup, does not seasonally adjust its unemployment reading, so some uptick during this time of the year is normal. But that kind of jump is far beyond normal.
Of course, the BLS might tweak its formula to further decrease its utterly confounding workforce participation rate to the point where the resulting unemployment rate will actually, and once again, surprise on the upside, despite the hue and cry that may cause.
And there was another indicator: the Philly Fed employment index collapsed from 11.6 in January to 1.1 in February—a warning shot for Jack Ablin of Harris Private Bank whose concerns on this were published by Politico’s Morning Money on Friday. The index reflects hiring plans by employers, and they have pulled in their horns. They’re now adequately staffed, though they might add a few people here and there, while they’re waiting for demand to show signs of life. That wait may tax their patience, however: gasoline prices are at an all-time high for this time of the year, and other debacles are tearing into the toughest creature out there that no one has been able to subdue yet. But even that tough creature may have reached its limit.
Over the years, the Philly Fed employment index has shown a strong correlation with the BLS jobs report, and Ablin estimated that based on it, only 50,000 new jobs were created, a far cry from the 243,000 in January—fictual or not. This and the nasty mid-month unemployment number from Gallup revive an odd idea: has the ECRI’s much ridiculed recession call been right all along?
Unless the BLS can figure out how to statistically adjust its next set of data and estimates to relegate any negative elements to blissful oblivion, there will be disappointment. And it will slam into lofty expectations—which may cause the stock market to, well, spike because, in these crazy times of ours, QE3 with all its wondrous, illusory, and ineffectual magic will suddenly reappear on the table.
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