The December jobs report was an ugly mix of slowing employment growth and disappointing labor supply. JPMorgan’s Mike Feroli doesn’t mix his words in his brief report on today’s ugly jobs data. While other ‘economists’ proclaimed we should “ignore it” or blamed it on the weather, Feroli notes for example, “It’s hard to see how the weather — or anything else — was to blame for the 25,000 decrease in employment of accountants.” But it his comments for the Fed that are most concerning as he worries, “the forward guidance decision could be even more difficult than the tapering call… lowering the unemployment threshold further would be doubling down on predicating policy on an arguably flawed statistic.”
Via JPMorgan’s Mike Feroli,
All Yours Janet
The step-down in nonfarm job growth from an upward-revised 241,000 in November to just 74,000 last month can partly be blamed on weather and, perhaps just as important, on the month-to-month noise in the series. Just as the hype over upside risks after strong November data was probably overdone, so too should the string of disappointing December data be taken in stride. Given the economic fundamentals we’d guess the underlying trend in job growth hasn’t materially shifted. More troubling though is not what we are learning about business’ labor demand, but what is happening in households’ labor supply: the unemployment rate plunged 0.3%-point to 6.7% as the labor force participation rate fell another 0.2%-point to 62.8%.
So far, the fall in unemployment is not being accompanied by even the slightest hint of wage acceleration — average hourly earnings were up just 0.1% last month — but it does raise the risk that the economy may bump up against capacity constraints sooner than hoped. Bernanke’s last meeting as Chairman will be a tricky one. We believe the Fed can convince itself there were enough special factors distorting this number that another $10 billion taper will be appropriate at the January FOMC meeting, though there may be some advocating a pause.
