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Jobs report beats expectations

The January jobs report beat expectations by so much that virtually all observers are finding reasons to downplay the news, even me. January is a big seasonal month, since jobs always decline as businesses wind down from the holiday crush of activity. The raw (not seasonally adjusted) numbers show that the economy actually lost 2.7 million jobs in January, but the gain was reported to be +243K on a seasonally adjusted basis. What actually happened in January was that the economy lost a lot fewer jobs than expected. Does that mean it's a whole lot stronger? Perhaps. More likely, it just reflects the fact that the economy has been doing better than expected for the past several months, and the market has been rather consistently under-appreciating the inherent dynamism of the U.S. economy.

So the job gains probably were somewhat exaggerated because of statistical quirks and seasonal adjustment factors. But the fact remains that this was a solid jobs report, and a big (and probably final) nail in the coffin of the double-dip recession that was supposed to have emerged by now. The economy continues to grow and it continues to overcome the obstacles (e.g., the financial jitters and big economic slowdown in the Eurozone) and headwinds (faux fiscal stimulus and extreme monetary stimulus) that have been thrown in its path.

As the top chart shows, the biggest upside surprise came in the household survey, which (seasonally adjusted) reported a gain of 1.1 million private sector jobs. Wow! A lot of this was probably catch-up, since it had been growing more slowly than the establishment measure of jobs of he past several months. Taken from the post-recession low, the two surveys are now showing private sector job gains of 3.7 - 4.1 million jobs. Let's make it simple: over the past two years, the economy has gained about 4 million private sector jobs, for an average of about 170K per month, and the pace appears to have picked up in recent months. That's decent, but not yet what is needed to get the economy back on its long-term growth path. But most importantly, it is a whole lot better than the market's gloomy expectations.

As the second chart shows, we continue to see a decline in public sector jobs. That's been good news all along (with apologies to those who have been laid off) because the public sector had grown way too much and some shrinkage was essential in order to stop suffocating the more-efficient private sector. Let's hope we see a lot more of this over the next year or two.

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