The US Starts 2014 with a Rise in New Jobs

Unemployment fell to 6.6 percent in January, reaching its lowest level since October 2008. This figure is only 0.1 percent away from the Federal Reserve’s threshold for revising its fiscal stimulus policy.

According to data published last Friday by the Department of Labor, the U.S. economy is picking up little by little, with 113,000 new jobs created last month, although January’s bad weather seems to have had a negative impact. There were high expectations for a revision of data from December; the final figure for new jobs was 75,000. Unemployment, meanwhile, fell by 0.1 percent to 6.6 percent, the lowest level since Oct. 2008, and came close to the threshold of 6.5 percent set by the Fed: Once unemployment falls below this level, the Fed is expected to lighten its policy of quantitative easing. The countdown has begun; it seems that not even the recent snows can stop the clock.

Like December’s results, January’s results were difficult to predict. This was not so much because of the figures themselves, but because of what they mean. Employment figures were distorted due to bad weather and the withdrawal of subsidies from 1.3 million long-term unemployed. The anticipated figure of 185,000 new jobs was a substantial overestimation. However, the predicted fall of 0.1 percent in unemployment was accurate.

The revised total for new jobs in December was not significantly different from the original estimate of 74,000, which added to a sense of disappointment with the latest data. The figure for new jobs in November was unchanged at 274,000. Bad weather would be unlikely to prevent companies from hiring staff, but it can pose a problem for data collection.

An Average of 180,000 Jobs

The U.S. economy has created an average of 180,000 jobs per month during the last two years, so the initial figures for January are below average. However, there has also been a reduction in the working population for demographic reasons such as aging and significant numbers of working-age people leaving the job market.

The total figure of 10.2 million unemployed includes all those still looking for work. Those who stop looking, even if they are still unemployed, are no longer included in the total, which could explain the drop. The figure for those in work is currently 63 percent of the working population, which is the lowest in three and a half decades. At pre-crisis levels, 63 percent in work would represent an unemployment figure of 11 percent.

Of young people, 20.7 percent are unemployed; the total of 10.2 million includes 3.6 million who are considered to be long-term unemployed. There are 7.3 percent who work part-time when they would prefer to be in full-time employment and 2.6 million have stopped actively seeking work. Despite these figures and the fact that unemployment is not falling in the way that the Fed would like, the figure of 6.6 percent is only 0.1 percent off the threshold at which the Fed has said it will adjust its policy of fiscal stimulus.

Weak Balance of Activity

The minimal data published so far for January are not particularly robust. Confidence is low, car sales are down and industrial activity has fallen to its lowest level in eight months. The exception is in the service sector, where figures showed an improvement. The Fed remains optimistic.

Dennis Lockhart, president of the Fed in Atlanta, said this week that the gradual reduction of bond purchases by $10 billion a month would continue until it stopped completely. However, on the trading floor of the stock exchange, it was impossible to rule out a pause in March, which will coincide with the Fed’s first meeting under its new chair, Janet Yellen.

Yellen is to present the Fed’s latest half-yearly analysis to Congress next week. The central bank is currently buying $65 billion worth of bonds per month, after two consecutive reductions. Interest rates have been at 0 percent since 2008 and are expected to remain at this level until mid-2015.