What January's Conflicting Jobs Report Means for Policymakers

Just when you thought economic uncertainty may have been improving a bit, we get Friday's unemployment report for January. While the Bureau of Labor Statistics' two survey methods generally provide different numbers of jobs created, this time the difference was particularly huge. One estimate said just 36,000 jobs were created while the other showed 589,000. That latter estimate also caused the unemployment rate to dip by a huge 0.4% margin, all the way to 9.0%. First, how should one interpret such a strange result? Second, how should policymakers react?

Unfortunately, it's pretty impossible to make any strong assertions about what's happening in the labor market due to the differing signals in last month's report. If the economy grew by 36,000 jobs, then that shows disturbingly weak job growth, despite a fresh year and apparently increasing consumer demand as retail sales hit a new high in December. But if the U.S. saw 589,000 new jobs, then this would be a fantastic step forward in the beginning of the new year. If that rate of job growth persists throughout 2011, then unemployment would be whittled down to below 6% by year's end. That would surpass even the most optimistic economists' wildest dreams.

But we have little clue which survey is right. Other estimates have been somewhere in the middle. ADP reported an increase of 187,000 jobs for January. Other sources provide similar positive news, but no where near the crazy, wonderful possibility of over a half million jobs created per BLS's high estimate.

So if anything, there's reason to believe that the economy is staying the course. That course is a relatively slow labor market recovery. But as we dismiss BLS's high estimate, we also probably shouldn't get too worried about BLS's low estimate of just 36,000 jobs created. It's likely that this will get revised upward in coming months. And this survey's methodology fails to include self-employed and several other categories of jobs, so it may be underestimating job growth coming out of a recession.

From a policy perspective, the best reaction to Friday's jobs report is patience. This morning, pundits on CNBC were debating whether the Federal Reserve should think about another round of more aggressive quantitative easing ("QE3") to spur more jobs. There's absolutely no reason to think such drastic action is necessary at this time. For all we know, a half million jobs could have been created last month if the more optimistic result is correct. Until policymakers get some better certainty surrounding what's really going on in the labor market, Washington should wait to act.

And as for more monetary stimulus by the Fed, it's hard to see how it would help much anyway. If the labor market is still failing to add enough jobs to bring down the unemployment rate, then that's a pretty clear verdict that the second round of quantitative easing didn't do the trick. If that's the case, then you have to ask when the Fed would admit that its efforts to expand credit again and again are failing to create jobs.

At this point, we can only say that the unemployment narrative we've been hearing for about a year now doesn't appear to have changed -- yet. There's some job growth, just not a lot of job growth as far as we can know for sure. If the BLS revises its estimates up or down in months to come, then the story could change. But for now all we can do is wait for some more consistent data.