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The jobs report wasn't as bad as the headlines suggest



As the above chart shows, the ADP did a pretty good job of tracking the BLS estimates of job growth up until about a year ago. The January ADP estimate of private sector job gains failed once again to come even close to the figure compiled by the Bureau of Labor Statistics. Plus, the BLS estimate came in much weaker than expectations (+50K vs. +145K). Despite these disappointments, however, this wasn't a bad jobs report. A good deal of the variance can be attributed to very bad weather in January and to the quirks of seasonal adjustments and benchmark revisions to the population estimate. Calculated Risk has a nice discussion of this here. With improving weather we are likely to see much bigger job gains in the months ahead.
As this next chart shows, even with all the problems that depressed job gains in January, the two key measures of jobs are both reporting the same rate of growth over the past year: about 1.25% annualized. That's sluggish, but it should be picking up over the course of this year, and over time that should be enough to reduce the unemployment rate. It was also nice to see an outsized gain of 49K manufacturing jobs, the biggest monthly gain in 10 years, confirming the strength that has been showing up in the ISM manufacturing surveys.

As the chart above shows, the public sector continues to shed jobs, which is actually good news since it means that state and local governments are tackling their budget problems by cutting costs. The public sector has suffered from excessive bloat for years now, and a cutback was long overdue. Expect this trend to continue.
Finally, the best part of the report was a big and unexpected drop in the unemployment rate.  It's still high, but it should be working its way lower over the course of the year. If it is slow to decline, at least part of the reason will be that with an improving economy, the number of people wanting to work will probably increase, and that will add to the number that are considered to be unemployed.

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