Unemployment Rate Drops and Dow Jones Jumps

The Dow Jones Industrial Average (DJINDICES: ^DJI  ) is up 117 points to 15,745 at 1:30 p.m. EST, following a January jobs report in which the unemployment rate dropped slightly but the number of new jobs was significantly less than expected. The S&P 500 (SNPINDEX: ^GSPC  ) was up 16 points to 1,789.

There was was one U.S. economic release today.

Report

Period

Result

Previous

Non-farm payrolls

January

113,000

75,000 (r)

Unemployment rate

January

6.6%

6.7%

The unemployment rate has been steadily falling but the jobs reports have been weak. The Labor Department's previous report initially showed the economy added just 74,000 jobs in December. Many analysts were hoping that was a temporary blip, but the latest numbers show jobs growth is slowing.

US Change in Nonfarm Payrolls Chart

US Change in Nonfarm Payrolls data by YCharts.

December's number was only revised up by 1,000 jobs to 75,000 jobs added that month. January's number was better at 113,000 but well below the 175,000 some analysts expected (other economists had projected 189,000 added jobs). Some have attributed the weak numbers to the rough winter the country is facing. With two polar vortexes sending freezing temperatures down as far as the Gulf of Mexico there may be some credence to this. In the northern U.S., for example, Minneapolis canceled school for the first time since 1996 as temperatures hit a low of -30, (-50 with the wind chill). Other parts of the nation have also been hit by snap colds and blanketed with snow.

Three inches of snow in Atlanta last week left many motorists stranded for long hours. Major retailers pitched in by allowing stuck commuters and others places to sleep on their floors. There aren't many job interviews going on in this kind of situation.

Meanwhile, the unemployment rate continues to fall as people leave the workforce. The unemployment rate hit a five-year low in January of 6.6%.

US Unemployment Rate Chart

US Unemployment Rate data by YCharts.

The market is up today as some investors believe the Fed will be less likely to continue to taper its long-term asset purchases if jobs growth continues to stay low. That's possible if the jobs market is actually getting weaker, but as it appears to just be a temporary lull from the poor weather I expect the Fed to continue to taper. With the central bank purchasing fewer long-term assets each month, I expect rates to stay above last year's level and profit growth to be challenged.

For me, the story remains the same. The economy continues to slowly grow, the jobs market is getting healthier, and the market is still overvalued.

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