Job gains fall short

Investors were focused on the strength of the labor market this week. A strong reading for job gains in Wednesday’s ADP report caused mortgage rates to move a little higher. The ADP data turned out to be a poor indicator for Friday’s weaker than expected Employment report, however, and mortgage rates ended the week lower.

Against a consensus forecast of 200K, the economy added just 74K jobs in November. This was the smallest monthly increase in jobs since January 2011. Given that several other labor market indicators showed greater strength in December, many investors were skeptical about how accurately the data reflects the strength of the labor market. For one thing, bad weather likely was a factor in the shortfall, as the construction sector was particularly weak. Upward revisions to the November data also partly offset the December results, leaving average gains of about 160K over the last two months. Bottom line, though, the report fell short of expectations, causing mortgage rates to move lower after the news.

In another twist, the Unemployment Rate unexpectedly declined from 7.0% to 6.7%, the lowest level since October 2008. Looking below the surface, reported job gains accounted for just 0.1% of the decline, while a large group of people leaving the labor force was responsible for the remaining 0.2% decline. While the headline Employment report is based on data collected from just large employers, the Unemployment Rate is derived from a separate survey of individual households. According to this survey, there were job gains of about 150K in December, while roughly 350K people were no longer seeking work and thus were removed from the labor force. Since the Unemployment Rate is simply the number people in the labor force seeking work divided by the total labor force, it counts equally whether a person stops seeking work by finding a job, giving up on the job search, or retiring.

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