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Investing Specialists

What's Not Working in the Jobs Report

The official January employment report was flawed.

The economic data this week were remarkably positive, ranging from increasing auto sales to solid manufacturing reports to exceptionally strong surveys from purchasing managers serving non-manufacturers. Revenues from individual retail stores for the month of January jumped over 4.8% from year-ago levels, according to the International Council of Shopping Centers. This was far above expectations, with growth clocking in above December levels. The only really worrisome news from both the economic data and corporate reports was that input costs are clearly on the rise, which could potentially short-circuit the recovery by raising prices and cutting demand.

In other news, the all-important employment report was so garbled with special factors, revisions, and weather-related issues as to render it almost useless. Even the government report wasn't consistent within itself, as half of the report (the household survey) suggested one of the biggest drops in the unemployment rate in history, while the establishment report showed almost nonexistent job growth (only 36,000 on a base of about 130 million).

The unemployment rate dropped by a stunning 0.4 percentage points for the second month running. Only about 0.1 percentage points of the drop was related to a smaller labor force participation rate. Consumers might feel just a little bit better about their employment situation with the rate now dropping back to 9%. Maybe that's why recent spending reports--such as the International Council of Shopping Centers January report and the government's Personal Income and Outlays report for December--have all looked so robust.