Don’t fall for the hype — the January jobs report isn’t as good as it seems 

The mainstream media appears to be all-in on Joe Biden’s reelection. Expect that enthusiasm to color nearly all reporting — especially on the economy.  

Take the most recent jobs report, which, we are told, was a stunner. Was it really? Or did the media willfully overlook a number of thorny issues? After all, the idea that the U.S. created 353,000 jobs in January flies in the face of numerous other data points:  

• Many companies reported fourth-quarter profits that beat Wall Street expectations, mainly because of “cost-cutting” — aka, layoffs. Did a whole bunch of firms turn on a dime and start hiring right after the end of the year? Firms in tech, the country’s fastest-growing industry, laid off 15,806 people in January. More broadly, Challenger, Gray & Christmas, a consultancy that tracks job cuts, reports that last month U.S. firms announced 82,307 cuts, a 136 percent increase from the 34,817 people terminated in December.   
   
• One of the biggest sources of new hiring was retail, which seems at odds with reports of rising credit card delinquencies and increased defaults on mortgages and auto loans. Credit card default rates rose 50 percent last year to the highest level since the financial crisis in 2008. If the consumer is struggling, retailers would be wary of adding workers.  

• Though interest rates are expected to come down, they remain high. Bank loans are tough to get and venture capital funding has dried up. Does that paint a picture of robust new business start-ups?  
   
• Moreover, corporate profits and overall private sector investment have mostly flatlined for the past two years. It would seem an odd time for companies to be adding workers.  
   
• Finally, the Household data report from the Bureau of Labor Statistics (BLS), seasonally adjusted, shows the number of employed persons dropped by 31,000 from December to January and is basically unchanged over the past year.  

Even the Council of Economic Advisers (CEA) appeared skeptical of the BLS’s January employment report, which was double the consensus expectation. It released a statement titled “Explaining that big upside surprise.”  

In trying to make sense of the “unexpected jump,” the CEA suggested that monthly numbers were “noisy” but that while “a miss of this magnitude is unusual, it can happen.” The White House group recommends looking at three-month averages instead of the January results, explaining that smoothing the numbers presents a more realistic picture. Looking at the figures from that perspective, the CEA claims that hiring has recently picked up, but is clearly below the numbers recorded in early 2022. 

The problem for the CEA is that the February employment numbers may look a lot less rosy. We are likely to see a substantial fall-off from the January figure, and it will be on the CEA, which happily took the win, to explain the downdraft. They applauded January’s report as a testament to the “continued strength of the US job market, which is at the heart of both the current recovery and Bidenomics!” Will February’s number also be the result of Bidenomics? 

In parsing the recent report, the CEA notes the obvious X-factor in the jobs report, cautioning: “one should be careful not to overinterpret one-month of data, particularly outliers. … The monthly job numbers reflect many sensitive adjustments, expertly applied by the BLS.” 

Yes, the BLS did a lot of “adjusting” to the jobs numbers, rendering them virtually indecipherable. It tinkered with seasonal adjustments and also applied its estimation of new business start-ups compared to business failures, the so-called birth-death model that has long been targeted by critics as subject to manipulation and leaps of faith.

In addition, BLS updated the North American Industry Classification System, which shifted about one-tenth of workers into different industries, resulting in “major revisions” to sectors like retail trade and information and less important changes in industries including manufacturing and financial services.  

The seasonal adjustment was especially noteworthy; on an unadjusted basis, payrolls actually dropped by 2.6 million last month. 

Also, the CEA points out, in this report the bureau adjusted “the sample-based payroll jobs numbers based on a census of employment.” As they state in a footnote, the census adjustment resulted in a loss of 266,000 jobs from last year’s March report.  

Finally, the Council points out that job gains for the prior two months were revised substantially higher, adding 126,000 jobs to the tally for November and December.  

Are you confused yet? You’re in good company.  

Bu that didn’t keep the media from jumping aboard the Happy Talk express. Headlines were so uniformly positive you had to wonder if there was an AI program lurking in the background. “U.S. Job Growth Surges,” proclaimed the New York Times. “Jobs Growth of 353,000 Blasts Past Expectations as Labor Market Stays Hot” reported the Wall Street Journal. The Washington Post joined the chorus: “Labor market grew 353,000 in January, soaring past expectations.” 

Few outlets bothered parsing the actual data, or those pesky adjustments. Wall Steet tried. A note from Wells Fargo economists wrote about the report: “Seasonal adjustment factors appear to have flattered the headline as smaller-than-usual post-holiday layoffs bolstered the payrolls numbers.” In their typically thoughtful and cautious manner, economists at ISI wrote: “most other labor market indicators are not currently validating the extreme strength in January payrolls…” 

Joe Biden has sold Bidenomics as helping middle-class Americans, and touts the January jobs numbers report as proof his plan is working. If hiring slows, he will have to explain why that also is part of his plan. 

The good news for the White House is that their friends in the media will be eager to help. 

Liz Peek is a former partner of major bracket Wall Street firm Wertheim & Company. Follow her on Twitter @lizpeek.