What Does January's Jobs Report Mean for Sentiment?
In case you missed the big news this morning, the U.S. unemployment rate declined to 9.0% in January. As I explained in an earlier post on the report, this may have been due to new jobs, but a conflict in government data makes actual job growth unclear.* So even though the headline rate looks better, the labor market recovery may not have sped up. Yet could the headline be enough to boost sentiment and lead Americans to believe that the economic recovery is getting stronger? This depends on two things: how deeply Americans read the news and how deeply the new media reports it.
The Media Coverage
Let's actually start with the second part first. A quick scan of headlines about the jobs report on Google news reads:
- Unemployment falls to 9% but job growth remains sluggish -LA Times
- US Jobless Rate Falls to 9% in January; Payrolls Rise 36000 -Bloomberg
- US Unemployment Falls, But New Jobs Lag -ABC News
- January jobs report disappoints -CNN
- U.S. payrolls up meagre 36000, jobless rate falls -Reuters
- Weather a Factor in Slow US Job Growth -NY Times
All of these headlines provide a somewhat accurate mix of good and bad news, though the New York Times was something of an outlier. But let's look slightly deeper at the first paragraph shown for each article:
Only 36,000 jobs were added to the U.S. economy in January, the federal unemployment report says, apparently reflecting a reluctance to hire. Unemployment fell to 9%, in part because more people have given up on the job market. - LA Times
The U.S. jobless rate unexpectedly fell in January to the lowest level since April 2009, while payrolls rose less than forecast, depressed by winter storms. - Bloomberg
The U.S. economy added 36,000 jobs in January, far fewer than economists had expected because of severe weather, but the unemployment rate fell to a two-year low of 9 percent. - ABC News
Winter weather kept job seekers home and offices closed in January, getting the year off to a disappointing start, while the unemployment rate took a surprising tumble. - CNN
U.S. employment rose by a meagre 36,000 jobs in January, far less than expected, as severe snow storms slammed large parts of the nation, but the unemployment rate fell to its lowest level since April 2009. - Reuters
The United States labor market slowed to a crawl in January, adding just 36,000 jobs last month, far below consensus market forecasts. - NY Times
Strangely, all blurbs except for the LA Times relies on weather for the central reason why job growth was may have been weak. This is ridiculous. Economists expected more than 140,000 jobs -- and those estimates should be taking weather into account. The job growth appeared weak because many firms are still very reluctant to hire -- not because it snowed a little worse than it does most winters.
This means that sources are generally providing the right numbers, but five out of six are providing the wrong analysis. Blaming the snow provides a false sense of optimism, because it implies that the labor market recovery would have shown considerably more strength if it didn't snow as much. This is highly unlikely. Even though the snow may have delayed some hiring a few days in some locations, it's pure nonsense to suggest that it cut hiring across the entire U.S. by 75% or more.
The Readers Perception
Let's say these articles are a good proxy for all of the media. For those who are only reading the first paragraph, just 17% will understand the big picture. The other 83% will have a somewhat mixed view, but probably blame the bad news on the weather. So that's probably net positive for that large majority.
For the readers who don't get past the headline, all should conclude that job growth remains weak. But none will really grasp whether this is due to firms refusing to hire more aggressively, the weather, or other factors.
The Effect on Sentiment
As you can see it's hard to tell what affect this report will ultimately have on sentiment, because it depends a lot on how deeply people read. For those just reading the headline, they will probably remain frustrated with hiring. For those who just read the first paragraph, most will wrongly believe that it's just weather that's stalling hiring. For those who read the entire article, it depends on how well the analysis gets the big picture (see note below).
Considering all of this, it's hard to see how this report has much effect -- positive or negative -- changing the direction of sentiment. Luckily, most news outlets aren't blindly celebrating the rate decline. So potentially naïve perception of a swift recovery in the labor market will probably be limited. Instead, cautious optimism, which I would argue is the view that most Americans have, is probably supported by blaming the weather for the weak hiring. That will be the takeaway for most readers. So we'll likely see sentiment continuing to slowly rise due to this report. That could provide a bigger boost to the economy than today's news might warrant.
*This post was revised slightly to reflect a correction made to this post. See this other post for more detail. I also removed a section about reading articles in full, because it has become unclear what affect that would have, since there was so much confusion across media outlets about this month's report.