Jobs Growth Falls Short Again



On Friday, the Labor Department reported that U.S. payrolls rose a seasonally adjusted 113,000 in January, falling well short of expectations. January also marked the second consecutive disappointing jobs report – only 75,000 jobs were added in December. This data was somewhat counterbalanced by net upward revisions for the prior three months of 77,000 jobs.

At the same time, the unemployment rate dropped a tick to 6.6% – the lowest level since 2008. This figure is just above the 6.5% unemployment rate the Fed has mentioned in the past, as a possible trigger for raising interest rates. Recent unemployment rate declines have been driven by a lower participation rate. However, the civilian labor force rose by 499,000 in January, and the labor force participation rate edged up to 63.0%.

At this point, it is hard to know how much of an impact this winter’s harsh weather is having on the economy. The combination of weaker economic data and concerns about emerging markets has likely been the primary driver of the market’s comparatively volatile performance year-to-date.

This mix of positive and negative economic data leaves us neither encouraged nor discouraged. As 2013 ended, the outlook appeared more positive, raising the possibility that the economy would grow more robustly in 2014 than 2013. In just a few weeks, weaker economic data has made it appear as if the slow growth trend may continue. Of course, we make this statement knowing that making economic forecasts is an inherently difficult exercise – economists are often chided for their inability to predict economic trends.

The slow growth trend could be a positive for the U.S. stock market. Weaker growth makes it more likely the Fed will proceed slowly with its tapering efforts, giving the market confidence that the transition away from quantitative easing will be less disruptive. Additionally, inflation should remain relatively benign, which will leave the Fed room to maintain its zero interest rate policy at least into 2015.

While we pay attention to the news about the economy, current events do not drive our investment process. We remain true to our approach of focusing on the long term and identifying those stocks we believe have the best chance to benefit the total returns of client portfolios over at least the next three-to-five years.