The Economic Outlook Is About More Than Just Jobs

The Labor Department’s employment report for January was the second straight monthly negative surprise in that area of the economy. It showed only 113,000 new jobs were created in January, well short of the consensus forecast for 190,000.

As they did in reaction to December’s dismal jobs report, Wall Street analysts are blaming it on the weather.

Perhaps they’re right.

However, within the January report, construction jobs, usually most affected by weather, actually increased by 48,000, while job losses were mainly in government, healthcare, retail, and the financial sector, difficult to see as affected by weather.

In addition, the number of full-time workers who reported bad weather prevented them from getting to their jobs was well below the norm. Only 262,000 workers reported they could not make it to work because of the weather, 21% below the historical average for January.

Analysts are also bringing in the ‘Household Survey’, which is usually ignored, but this time offers a surprising hook to hang positive scenarios on. It showed a huge 606,000 new jobs created in January.

The result is complaints from analysts that the divergent jobs reports are tricky to interpret, too easy to misread in one direction or the other.

Okay then, let’s look at this week’s other economic reports, which may be less tricky and just as important as the jobs report.

Thursday’s report was that the U.S. trade deficit widened 12% in December as imports rose and exports declined. A widening trade deficit is considered a negative for the economy. And deteriorating demand from foreign countries for U.S. exports can hardly be blamed on weather in the U.S. Some economists are suggesting the slump in exports may result in a downward revision to previously reported fourth-quarter economic growth, and augurs poorly for the first three months of 2014.

The ISM Mfg Report also surprised on the downside this week, showing a plunge from 56.5 in December to just 51.3 in January. Within the report, new orders for future jobs-producing production plunged from 64.4 in December to 51.2 in January.

The report of U.S. auto sales also disappointed, falling 3% in January, after also disappointing in December (in spite of the return of zero percent financing and rebates to entice buyers). However, disappointing auto sales could be weather-related, at least in the northern states.

But still. The dismal Labor Department jobs report, the negative widening of the trade deficit, the plunge in the ISM Mfg Index, and in new orders, as well as the decline in auto sales, were just this week’s reports.

They arrived after recent reports of Durable Goods Orders plunging 4.3% in December, and the downside surprises from the housing sector (home sales, new home ‘starts’, permits for future starts, pending home sales, mortgage applications, etc.).

Meanwhile, the stock market has been in an overdue and widely expected short-term correction since the end of the year. In the process, the Dow and S&P 500 gave back just about all the gains they had made since last October.

It finally got to investors, cooling off some of the previous excessive bullishness. Citi Group Research reports that in the five days ended February 5, investors withdrew a record $28.3 billion from stock funds, and poured a weekly record $14.8 billion into bond funds.

As I noted in my blog on Thursday morning, in the correction the major market indexes went from being short-term overbought above their 50-day moving averages at the end of the year, to being short-term oversold beneath those moving averages on Wednesday, and that “is likely to create at least an oversold bounce.”

That expected rally off the oversold condition is underway. Perhaps strangely, it seems to be in reaction to the dismal jobs report. Will it have legs?

Probably not. There are reasons to believe the expected short-term correction is not over yet, the continuing dismal economic reports being part of that equation.

Investors may want to be slow to jump back in until there is at least some evidence that the U.S. and global economic problems are merely temporary, merely weather-related.

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Sy is president of StreetSmartReport.com and editor of the free market blog Street Smart Post. Follow him on twitter @streetsmartpost. He was the Timer Digest #1 Gold Timer for 2012 (Gold Timer of the Year), as well as the #2 Long-Term Stock Market Timer.