What Will February Employment Report Be?

Popular Economics Weekly

We are already getting predictions on the upcoming (Friday) U.S. unemployment report. If in line with last year’s 3 million total, it works out to 250,000 nonfarm payroll jobs (i.e., excluding the self-employed) per month. The Bureau of Labor Stats payroll report is considered the more accurate of the 2 reports—Establishment (payrolls only) vs. Household (includes self-employed) surveys—since the Establishment sample of businesses surveyed is much larger.

Graph: Calculated Risk

Some 257,000 jobs were added to payrolls in January, a surprising total, considering it was in mid-winter. All sectors were hiring, and higher personal incomes and expenditures are the result.

Personal incomes are rising at a healthy 4.6 percent annual clip, and expenditures are rising 3.5 percent per annum. Whereas the so-called PCE price deflator showed just 1.3 percent annual inflation, and it is the preferred Federal Reserve inflation indicator.

So we have once again a goldilocks economy—not too hot or cold—with low prices fueling robust consumption. That is why consumers are remaining confident of their financial future, as the latest confidence and sentiment surveys confirm.

Buttressing that optimism is a little noticed Misery Index that only pops up when there is an economic inflection point, such as now with the uncertainty as to when the Fed will begin to raise interest rates. The Misery Index that combines unemployment and inflation rates is at an all-time low, at the moment. The last time it was this low is 2006, during the housing bubble.

It is the sum of the unemployment + inflation rates, which today are 5.7 percent + 1.3 percent, respectively, which equals 7 percent! Less misery is less spending pain felt by the consumer. And less pain means shopping becomes more pleasurable, hence fuels higher profits and more job formation.

We therefore see solid job formation in 2015, even if interest rates begin to rise sometime later in the year.

Harlan Green © 2015

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