By Maulik Mody – Bondsquawk.com
February 4, 2011
The unemployment rate in the U.S. for January unexpectedly fell to 9.0%, its lowest level since April 2009, when it was reported at 8.9%. This figure comes after a reading of 9.4% in December, much below economists’ expectations of 9.5%. This reflected both a population benchmark that subtracted 185k from the labor force, as well as an ongoing decline in labor force participation which subtracted another 319k. The unemployment rate would have been unchanged absent these two factors. The ongoing savage decline in participation reflects both demographics as the baby boomers transition into retirement as well as a structural adjustment as people simply give up looking for jobs. This means less labor force slack, but also less economic growth as there are fewer paychecks in the economy.
The change in non-farm payrolls was also much less than expected, increasing by 36,000 in January. This is the smallest increase in 4 months, coming after a 121,000 increase in payrolls in December and missing expectations of 146,000. Private payrolls increased by 50K versus an expected 145K. Bad weather keeping employees at home and businesses temporarily closed caused January payroll numbers to be unusually low.
Manufacturing payrolls surprised by increasing 49K in January, the most in over a decade, after a 14K increase in December. Improving manufacturing activity has helped in adding jobs to the economy and in driving the recovery. Among other industries, construction payrolls dropped by 32K. Transportation and warehousing payrolls shed 38K. The financial sector payroll fell 10K, and government payrolls declined 14K.
Although payroll numbers came in weaker than expected, a lower unemployment rate and improved manufacturing activities indicate an improving job market. On balance the report says two things. First, the decline in the unemployment rate correctly signals that there is less labor force slack and therefore fewer deflationary pressures. However the lack of acceleration in job creation and the decline in labor force participation highlight that the US economy appears to be downshifting to a new normal for growth.
Stocks were trading slightly higher this morning, with the S&P less than a point higher at 1308 and NASDAQ 0.25% improved at 2760. Treasuries fell as yields rallied higher. The benchmark 10-yr note was trading 8 bp higher at 3.63%. Yield on the Long Bond was 6 bp higher at 4.72%.
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