Breaking Down the January Jobs Report

The Bureau of Labor Statistics (BLS) released its Jobs Report for January on February 4, and while the report appeared to be strong on the surface, much of the strength may have been due to adjustments. Let's break down this important data, as we also look ahead to February’s Jobs Report, which will be released on Friday, March 4.

The key headline that investors and analysts celebrated was the creation of 467,000 new jobs in January, which was well above estimates of 150,000.

Remember, many economists were even expecting to see a decline in jobs, especially after the big miss in the ADP Employment Report for January that was reported two days earlier on February 2. The ADP Employment Report, which measures private sector payrolls, showed that there were 301,000 job losses in January – well below the 200,000 job gains that were expected.

So, when the markets and analysts saw the 467,000 upside beat in the BLS report, they celebrated it. But when we look deeper into the numbers, there are some quirks in the data that made this report look stronger than it actually was.

When we look at hours worked, they were down from 34.7 to 34.5. As a result, the total number of hours worked fell 0.3% for all workers, which is the largest decline in almost a year.

So, what does this mean? If that 0.3% drop had come in the form of fewer jobs while the number of hours per worker didn’t change at all, jobs would have declined by about 350,000 in January.

Remember that there are two reports within the Jobs Report and there is a fundamental difference between them. The Business Survey is where the headline job number comes from and it's based predominately on modeling.

The Household Survey, where the Unemployment Rate comes from, is done by actual phone calls to 60,000 homes. The Household Survey also has a job loss or creation component, and it showed 1.2 million job gains in January, as well as a 1.4 million increase in the labor force.

While that seems pretty strong, remember that every January, the Labor Department inserts into the Jobs Report new Census Bureau estimates on the total size of the US population. This, in turn, affects the numbers on the labor force and employment. That population adjustment was responsible for all the increase in civilian employment and the labor force in January. Without this quirk, the Labor Department would have reported a 272,000 drop in civilian employment and a 137,000 decline in the labor force.

January’s report showed that the data for November and December was revised higher, adding 709,000 additional new jobs in those months combined. While revisions like these usually add to the strength of the report, January’s report is different.

That’s because each January, the Labor Department goes back and revises monthly seasonal adjustment factors for each month of the entire previous calendar year. So, even though November’s and December’s figures were revised up substantially, the data for June and July was actually revised down by over 1 million jobs, which ended up being a net negative.

The bottom line is that we have to temper some of the enthusiasm for January’s Jobs Report because of these seasonal adjustments that are made and the new data this is plugged in during the first month of the year.

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