Darn that Groundhog!
Since seeing his shadow, we’ve had snow storms, a stock market swoon and some less than great jobs numbers. This morning (February 7) the economists (distant relatives of groundhogs) were expecting the government survey to show that jobs grew by 190,000 in January. Instead, the figure was only 113,000 … marginally better than December’s 75,000. Some experts blamed at least part of the shortfall on the bad weather.
Back-story: Phil the Forecaster
Everyone is familiar with Punxatawney Phil, the most famous Pennsylvanian after Rocky Balboa. His local counterparts are Chuckles VIII in Connecticut (Chuckles VII was, unfortunately, run over by a car). New York has Staten Island Chuck and there’s Ms. G in Massachusetts. An exhaustive search failed to turn up a prognosticating rodent in Rhode Island. All the aforementioned groundhogs (also known as marmota monax and woodchucks) saw their shadows on February 2 - implying six more weeks of winter. I hate to disparage another forecaster, but the National Climatic Data Center has examined forecasting records and concluded, “Phil’s forecasts are, on average, inaccurate. The groundhog has shown no talent for predicting the arrival of spring, especially in recent years. Phil’s competitor groundhogs across the Nation fared no better."
The Real Story
The January jobs numbers were a disappointment. Weather probably played a role in dampening the “establishment survey” – as it did in December. So we’ll have to wait a while to get a better picture of the true situation. Interestingly, the companion “household survey” which should be less “weather sensitive” showed very strong jobs growth of 638,000 in January. If someone missed work because of the bad weather, the monthly establishment would only count them has having a job if they received a paycheck during the survey period while the household survey would count them as employed even if they didn’t get paid. Economists tend to attach more significance to the establishment or payroll survey number for a several reasons, including smaller volatility than the household measure.
What it Means
The horrible weather over much of the country makes it difficult to ascertain how fast the economy is really growing. And it’s not just jobs. Auto sales, which had been one of the business bright spots, fell in January as snow fell and kept buyers out of the showrooms. This uncertainty supports the modest nature of the recent start by the Federal Reserve in the winding down of the purchases of Treasury and mortgage-backed securities. The Fed started buying in 2008 and had been purchasing $85 billion per month during the past year or so, It reduced the pace first to $75 billion and then to $65 billion at the latest Federal Open Market Committee Meetings.This cautious start, plus concerns over the effects of rising interest rates on a number of emerging economies (such as India, Turkey, and Indonesia), should help keep a lid on bond yields in the near term. The benchmark 10-year U.S. Treasury note has fallen below 2.7 percent from 3 percent just a few weeks ago. And mortgage rates have followed.
In New England, we say if you don’t like the weather, wait five minutes. That’s far better than waiting a year for the groundhog. More seriously, if the economists are right and jobs growth picks up in coming months, then long-term bond and mortgage rates will start rising again.