This morning, the Bureau of Labor Statistics (BLS) released “The Employment Situation – January 2025.” In it, the BLS reported the Unemployment Rate fell from 4.1% to 4.0%, and the economy created 143K net, new payroll jobs. On its face, it would seem like a pretty good report, and the media is basically treating it as such.
No, it wasn’t a blowout. Far from it. However, it was decent enough to suggest the U.S. economy is on reasonably solid footing, and an economic worst-case scenario isn’t immediately in the offing. Further, what’s not to like about a 4.0% Unemployment Rate? I mean that is beyond awesome.
Unfortunately, I found the dip in the unemployment rate to be “too good to be true,” all the more so since the Labor Force Participation Rate had ticked up to 62.6% from 62.5%. After all, if more people are looking for work AND the Unemployment Rate still goes down, boy, the economy must have created an eye-watering number of jobs in January.
According to the Household survey, brother, did it ever. Remember, the Employment Situation report has two primary components: the Household and the Establishment data. We get the Unemployment Rate from the former, and the official payroll jobs number from the latter.
In January, if one is to believe the BLS’ household numbers, there was a somewhat shocking increase of 3.047 million people in the “civilian noninstitutional population.” It was easily the biggest monthly increase in the series in at least 50-years. The next closest month was January 2000, which has a 2.578 million surge in folks. Coming in third is January 2012 at 1.685 million.
Clearly, the BLS does some yearly adjusting in its January data. However, the monthly average is around 201K going back to 1975, and the median is 186K. So, 3.047 million? Yeah, that sort of stands out, and not really in a good way.
So, if we created over 3 million Americans out of thin air in January, employers must have gobbled them up as quickly as they stepped out of the ether. Right?
Oh, and how.
It seems, again according to the Household Data, the economy created a whopping 2.234 million new jobs last month. That is almost identical to the official number of payroll jobs in the entire State of Alabama. While our economy isn’t that massive, that is still an impressive lick of new hires.
In fact, January was the fifth best month for job growth over the last 50 years! The only months which are better are all in 2020, the worst of the pandemic, when ALL of the economic data was as worthless as a bicycle for a fish. For its part, the monthly average of new jobs going back to 1975 is 130K, with a median observation of 170K.
All of these employed people coming, quite literally, out of nowhere is a pretty major accomplishment! An economic B-12 shot right in the arm! If only it wasn’t clear evidence of the need for new methodology at the BLS. Either that or it is intentionally wrong, and I sincerely don’t want to go there in my head.
Basically, it is kind of hard not to discount the report.
Unfortunately, this stuff is important. The overall health of the labor markets is a key factor in the determination of future monetary policy. If the powers that be charged with calculating the numbers can’t get them right, how will we know if our monetary policy is appropriate?
With that said, the remainder of the report was neither fish nor fowl. As an aside, that is the second time I have mentioned fish in this newsletter which is a record for me. Of the 143K net, new payroll jobs the BLS suggests the economy created in January, 32K were in the government sector. As such, only 111K were in the private sector.
That is pretty mediocre, but not awful. You can think of it as the Filet-O-Fish sandwich at McDonald’s.
The economy didn’t create any new jobs in the aggregated ‘goods-producing’ sector, as in 0. Mining & Logging shed 7K. Construction added 4K, and Manufacturing made up the remaining 3K. Obviously, that is not ‘blowing it out of the water.’
As for the service sector, we added an impressive 34.3K retail jobs, with the preponderance of those being at ‘warehouse clubs, supercenters, and other general merchandise retailers.’ Physicians offices’ bought on 16.6K new workers. Hospitals hired 13.9K new folks. Nursing homes needed an additional 13.2K staff members, and Social assistance organizations added yet another 20.1K. Finally, as previously mentioned, the government, in all its many guises, brought on 32K new employees.
Everything else? From bankers to lawyers to waiters to bartenders to accountants to interior decorators to engineers to coders to marketers to flight attendants to the rest of it, the rest of the economy created a pretty puny 12.9K net, new payroll jobs last month. That is NOT suggestive of surging labor markets. In fact, it kind of suggestions the private sector is taking a little bit of a breather.
Again, this was all very mediocre. It certainly wasn’t the worst-case scenario. However, almost equally, it wasn’t a best-case scenario either. I am not trying to be a cold fish or find dark clouds in silver linings.
I am just trying to make sense of some increasingly weird looking labor reports. This at a time when the veracity of the numbers is incredibly important, more so than normal. One can only hope the BLS will reexamine their methodologies. But, what with D.O.G.E. and the new Administration playing havoc on the Federal bureaucracy? I am sure it has bigger fish to fry than making the monthly jobs report make perfect sense to everyone.
In the end, this morning, the BLS released “The Employment Situation – January 2025.” The headline numbers were pretty decent. Unfortunately, the underlying data was kind of weird looking. As a result, the Federal Reserve is in the position of making monetary policy decisions based off of some potentially faulty information.
And isn’t that a fine kettle of fish?
Thank you for your continued support. As always, I hope this newsletter finds you and your family well. May your blessings outweigh your sorrows on this and every day. Also, please be sure to tune into our podcast, Trading Perspectives, which is available on every platform.
John Norris
Chief Economist
Please note, nothing in this newsletter should be considered or otherwise construed as an offer to buy or sell investment services or securities of any type. Any individual action you might take from reading this newsletter is at your own risk. My opinion, as well as those of our Investment Committee, is subject to change without notice. Finally, the opinions expressed herein are not necessarily those of the rest of the associates and/or shareholders of Oakworth Capital Bank or the official position of the company itself.