The January Effect

This morning the Bureau of Labor Statistics reported that non-farm payrolls fell by 20,000 jobs in January.  Employment increased by 11,000 in manufacturing, just the second monthly increase in three years.  Manufacturing job growth was highly concentrated in motor vehicles and parts.  Retail trade showed a more broad-based improvement with job growth in grocery stores, department stores, and various other specialty retailers.  The growth, however, was offset by another sharp decline in construction, where 1.9 million jobs have been lost since the recession officially began in December 2007.  In a separate survey, the unemployment rate fell from 10.0% to 9.7%. 

The BLS uses a rigorous and complex methodology to “seasonally adjust” the data it reports.  What actually happens is that the number of employed persons falls sharply every year from December to January.  The chart below shows job losses over the last several year-ends on a non-seasonally adjusted basis

Period	Jobs Lost	Jobs Lost as a Percentage of the Work Force
Dec 2009 – Jan 2010	2,819,000	2.16%
Dec 2008 – Jan 2009	3,699,000	2.73%
Dec 2007 – Jan 2008	3,035,000	2.19%
Dec 2006 – Jan 2007	2,795,000	2.03%
Dec 2005 – Jan 2006	2,653,000	1.96%

In real life, all the job categories in which the adjusted data shows strong job growth, actually had big job declines.  Manufacturing lost 132,000 jobs and retail trade lost 556,000 jobs.  The point, though, as the chart makes clear, is that this year’s seasonally drop off was less in both numbers and percentage in the previous two years.  If the BLS statisticians are correct, we should see real, not just adjusted, job growth in the months ahead. 

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