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Jobs Report: First Impressions

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The nation's payrolls grew by 113,000 last month, once again dashing analysts' expectations for a stronger month of job growth and reinforcing the possibility of yet another slowdown in job creation.

A closely watched piece of this puzzle was the revision to December's surprisingly low payroll number -- originally 74,000. But today's revision left that paltry number essentially unchanged, at 75,000. November's payroll gain, on the other hand, was raised by 33,000 to 274,000, bringing the average gain over the past three months to about 150,000 compared to about 200,000 per month over the prior three months.

Last month, I stressed that one month does not a trend make. Today, I'll stress that two months does not quite a trend make either, but the possibility that the US job creation engine has once again downshifted cannot be rejected out of hand.

However, a significant factor in the deceleration of job growth is the government sector, which lost a large 29,000 last month and 14,000 the month before, driven by losses at all levels: federal, state, and local. Private sector payrolls, leaving out government jobs, added 142,000 in January and have averaged about 170,000 over the past three months compared to about 190,000 in the prior three months -- still a deceleration, but a slight one compared to the total.

Unlike last month's report, today's version from the survey of households shows better results. Unemployment fell slightly from 6.7% to 6.6%, and not because people left the labor force. In fact, the labor force rate ticked up slightly to 63%, still low -- and down six-tenths from a year ago -- but at least a move in the right direction. (The BLS reweighted the household data; these numbers come from table C in the report which adjusts for those changes.)

However, given the much larger size of the payroll survey and thus the relatively lower signal-to-noise ratio of the household survey, I'd say the weak payroll number is imparting more information than the slight decline in the jobless rate and growth of the labor force.

As noted in my post yesterday (and yes, I should have listened more carefully to what my models were predicting), today's release contains a benchmark revision of historical payroll data based on more complete job counts. The revision added about 350,000 to the levels of payrolls as of March of last year. This means that instead of adding 2.2 million jobs in 2013 (Dec. to Dec.), employers added 2.3 million.

A few other indicators of note, and I'll add updates throughout the day:

-Long-term unemployment ticked down to 35.8% but is still highly elevated. Especially given the slowdown in job growth, this is a uniquely bad time to allow extended unemployment benefit to lapse.

-Outside of government, the major industry to post losses was retail trade, down 13,000. While it's true that consumer buying power has been hurt by weak wage growth for many in the workforce, this loss is an outlier as the sector has seen steady gains in recent months.

-Health care, a stalwart that has been a consistent contributor to job growth, has uniquely stalled, adding only 3,000 jobs over the last two months. I expect this to reverse in coming months. Though costs in the sector have been growing a lot less quickly, basic demographics predict continued demand for health care, as does national reform measures that will cover millions more people.

-Average hourly wages rose 1.9% over the past year, a bit faster than inflation, which has been running closer to 1.5%, implying slight, and welcomed, real wage gains. Note, however, the persistent slack in the job market has kept nominal wage growth low. These real gains are more a function of weak demand, and thus low inflation, that they are indicative of a strengthening job market.

Though the private sector looks better than the total (due to large government job losses) one can't help but worry about yet another economic "head fake." Other major indicators are at least in the OK range -- real GDP growth accelerated smartly in the second half of last year, for example, and there is less fiscal drag weighing on growth this year compared to last, though the loss of UI benefits pushes the wrong way in that regard. But the job market and the wages, incomes, and basic confidence it spins off is at the heart of the American economy. It has never fully recovered from the great recession that began in late 2007 and today's report only confirms that unfortunate observation.

This post originally appeared at Jared Bernstein's On The Economy blog.