Jobs: More Sideways Than Down?

I always dislike pundits who use the weather in order to avoid making definitive statements about economic numbers. But today’s jobs news from ADP, the payroll management company, provide a legitimate example where such avoidance makes sense.

The report, on the surface, is not good. The economy lost 22,000 from private sector payrolls in January. On the bright side this is the lowest monthly decline in two years. On the gloomy side it is yet another month of losses. The bad weather across the country appears to have distorted the data somewhat and may be masking a better trend: many industries that are showing some growth reported cutbacks that seem out of line with their expansion. Digging more deeply reveals that the ‘cutbacks’ were temporary and related to inactivity enforced by storm closures. Let’s all wait and see next month’s report, although February has also seen some big storms, so we may have to wait until early May when we see the figures for March for us to decide whether the the last two month’s are aberrations or not.

Underneath the surface we find contradictory trends: the goods producing industries shed jobs – 60,000 of them – with manufacturing leading the way with a loss of 25,000. For those of you wishing to find a positive message, this loss in manufacturing was the lowest monthly loss since the onset of decline a couple of years ago. The service sector turned in growth, 38,000 new jobs for the month, which partially offset that goods producing loss.

The worst news is in construction, where job losses since the peak of the construction boom now have reached an epic 1,804,000, with 37,000 of that total coming in January. Clearly with the real estate bubble having burst and any rebound likely to be very modest, construction will not recover to its 2007 peak for years.

What do we make of this?

Given the weather uncertainty in the data I would hesitate to argue that the employment market is worse. The level of variability in the data is wider than the actual loss reported, so we have to think more in terms of a band of changes rather than a single point. With that said the best spin I can put on the report is that the employment situation isn’t necessarily getting worse, but it isn’t getting much better either.

The rate of mass layoffs, as reported by the government, has fallen somewhat, and planned lay-offs being reported by big businesses – this is data collected in a different report by Challenger Grey, a recruiting and outplacement firm – are also declining. So we seem to be at the end of the cutting back process. Whether we now see an upturn is highly problematic and speculative. From my vantage point I would be surprised if the economy added many jobs during the first quarter because private businesses seem to be stuck in retrenchment mode with a hesitant outlook for 2010. The longer this hesitancy rules business decisions, the more likely it sets up a self-fulfilling contraction in activity. Hence the need for further efforts from the government to break the pessimism of business and encourage expansion.

Whether we get enough such encouragement is an open question. Meanwhile things seem to be moving more sideways than down.