January Jobs Report: Good News for the Economy, Bad News for the Pessimists

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A Chrysler Group LLC employee works on a 2012 Jeep Compass on the production line at the company's assembly plant in Belvidere, Illinois, Feb. 2, 2012.

Some Obama opponents are struggling to find a cloud in the silver lining of January’s jobs numbers, which estimated that there was a 243,000-job boost and a big drop in the unemployment rate, from 8.5% to 8.3%, last month. Their biggest gripe focuses on the size of the labor force: As the unemployment rate has trended down over the last few months, anti-Obama commentators have argued that the official percentage for those without jobs is deceptive because the Bureau of Labor Statistics doesn’t count those who have stopped looking for work. In Friday’s report, they found a sharp increase in that group: More than 1.2 million people joined the non-job seeking pool of working-age Americans last month.

(Video: What It Took to Create a Job for One Bright Engineer)

I was ready to join the pessimists Friday morning when I saw the sharp drop in the unemployment rate, but for a different reason. The January unemployment report, I had been forewarned by BLS, was the first to be based on models using 2010 census figures. (All these numbers are guestimations based on surveys of smaller samples taken around the country). A big shift up or down in the unemployment rate, I thought, could be explained by the change in the overall population of the country, reflected in the census numbers.

(MOREGood News: Unemployment Falls to 8.3% as U.S. Adds 243,000 Jobs)

But the census adjustments actually work against my theory and that of the Obama-detractors. The demographic adjustments had no effect on the unemployment rate, says Mary Bowler, the resident expert in these matters at the BLS. And when it comes to labor force estimates, the steep jump in the number of those not seeking work came entirely from the census adjustment, which added 1.25 million people to that group. If you take out the census adjustment, the labor force numbers stayed essentially the same, as reflected by the labor force participation rate of 63.7%. In other words, the spike in the number of people no longer looking for work is entirely the result of some people at the Labor Department adding numbers to their spread sheets rather than an actual observed shift anywhere in the real economy.

In recent months there have been other reasons to be pessimistic about the economy and about the unemployment numbers, but January’s report offers good news in those areas as well. Even though consumer sentiment and retail sales have been improving over the last few months, some economists argued that the economy could never really turn the corner until the housing market cleared the millions of pending foreclosures that are keeping housing prices low and mortgage holders underwater. The latest employment numbers suggest a turnaround may be underway in housing even though the foreclosure bulge is still working its way through the economy. The January jobs report showed a sharp improvement in housing employment, says Jed Kolko, an economist at Trulia. Construction employment was up 3.9% compared to three months ago. Kolko also points to a big jump in youth employment, as the unemployment rate for 25-34 year-olds dropped to 9% from 9.4% in December. That age group is the prime demographic for changing housing demand.

And just as a final kick in the teeth to those of us who tend to look at the glass as half empty, the Institute for Supply Management on Friday reported that factory orders were up 1.1% in December, suggesting job growth may continue, at least in the manufacturing sector, as producers hire more workers to meet demand.

All in all, it was a very grim day for serial pessimists, this writer included.

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