January Jobs Report Unclear
- Feb 07, 2011
Dees Stribling, Contributing Editor
Were January’s jobs numbers good or not? The puzzle was that the U.S. Department of Labor reported that a measly 36,000 jobs were created in January, and yet the overall unemployment rate dropped to 9 percent flat, its lowest level since April 2009, when the unemployment rate was on an escalator ride upward.
As it happens, the numbers aren’t based on the same survey. To gauge employment growth, Labor asks 140,000 businesses what’s going on in terms of hiring, and then extrapolates. To gauge the unemployment rate, the department surveys 60,000 households, asking about their employment status, and then extrapolates. According to that extrapolation, some 589,000 people found work in January, bringing the unemployed to 9 percent.
So why the huge discrepancy? The two surveys have been at odds before, but rarely by such a large number. Economists have put forth various ideas on the question, such as discouraged workers leaving the labor force and thus driving the rate down (Labor says that isn’t the case, however); undercounting of jobs created by new businesses, which the business survey is apt to miss; the fact that the population counts used for the household survey changed between December and January, making it hard to compare the two months in a meaningful way; and even the impact of the recent blizzards. The consensus among economists on the January unemployment puzzle seems to be: Go figure.
COP hearings: CRE loans a worry, not a time bomb
The Congressional Oversight Panel (COP) for the Troubled Asset Relief Program (TARP) held a hearing at the U.S. Senate Office Building on Friday about the state of the commercial real estate market and its implications for bank stability. At the beginning of the hearing, Ted Kaufman, chairman of COP, framed the size of the problem by noting that $3.4 trillion in U.S. CRE debt is outstanding. “Small banks in particular could face insolvency, as nearly 1,300 banks nationwide are considered by regulators to have concentration in commercial real estate,” he said.
On the whole, however, the mood of the hearing seemed to be one of concern, rather than alarm. “While we expect significant ongoing CRE-related problems, it appears that worst-case scenarios are becoming increasingly unlikely,” testified Patrick Parkinson, the director of the division of banking supervision and regulation at the Fed. Still, he added, “even if CRE delinquency metrics continue improving, there remains a sufficiently large overhang of distressed CRE at commercial banks such that loss rates for this portfolio will likely stay high for some time.”
Sandra Thompson, director of the FDIC’s division of supervision and consumer protection, predicted that bank failures this year will not be more than during 2010, whether because of CRE or other reasons–but that there will still be quite a few. “The FDIC expects that banks will work with commercial borrowers who remain creditworthy despite some deterioration in their financial condition,” she said.
What to do about Fannie, Freddie and banker bonuses?
Two proposals are expected to be released on Monday to deal with some of the remaining sore spots in the economy. The U.S. Department of the Treasury, for one, will announce a plan to overhaul the two GSEs, Fannie Mae and Freddie Mac, as it was tasked to do by the Dodd-Frank financial reform bill passed last year. Reportedly it will involve scaling back the GSEs near-universal presence in the U.S. mortgage market to merely a very large presence.
The FDIC is also poised to make a few suggestions of its own, namely that top banker bonuses be tied in some way to job performance–such as by deferring half of those bonuses for three years, so as to gauge how things have gone in the interim. The thinking is that such a rule would discourage “inappropriate risk-taking” by bank muckamucks. Such an approach, though with a higher percentage, is already in the works for E.U. banks.
Wall Street dropped in early trading on Friday, but managed to claw its way back into positive territory by the closing bell, with the Dow Jones Industrial Average up 29.89 points, or 0.25 percent. The S&P 500 gained 0.29 percent, and the Nasdaq advanced 0.56 percent, despite reports that hackers hacked their way into Nasdaq’s computer systems a few times in the last year or so.