Market Insider

Jobs report too ‘weird’ to just blame the weather

Jobs report leaves unanswered questions

A second month of surprisingly weak job growth and a lower unemployment rate is sending mixed and inconclusive messages about how much the economy is being impacted by weather or just slowing for some other reason.

January's new nonfarm payrolls totaled 113,000, yet the unemployment rate fell to 6.6 percent from 6.7 percent. The participation rate—the proportion of Americans who have a job or are looking for one—rose to 63 percent from 62.8 percent after falling in December.

Economists had expected 185,000 jobs and an unchanged unemployment rate of 6.7 percent, according to Thomson Reuters.

(Read more: The moststressful jobs for 2014)

A construction worker in New York during the Feb. 3, 2014, snowstorm.
Matt Rourke | AP

Stock futures initially fell on the report, but recovered within minutes. Bond yields dipped but moved off their lows.

"This is not a definitive bull or bear report. This is very weird. Often you have numbers that are balanced. This one has real anomalies," said David Ader, chief Treasury strategist at CRT Capital. December's nonfarm payrolls were revised up by just 1,000 to 75,000, also a surprise.

"It's a bad report," added Daniel Greenhaus, chief global strategist at BTIG. "I'm not necessarily blaming the weather. Construction jobs gained." Construction showed a surprising gain of 48,000, a group unexpected to see gains in the winter weather.

The report also put market focus instantly on the Fed, which uses labor growth as a metric for monetary policy. The Fed has been reversing course on its easy money policy by slowly reducing purchases of Treasurys and mortgage securities.

(Read more: Weak jobs number alone won't sway Fed: Fisher)

Cramer: Weather is not a bad excuse

"The headline weakness is not going to have the Fed refrain from tapering," said Ader. "It's a piece of the puzzle that's going to keep us more in a range than anything else. I think it raises a lot more questions than it answers."

Ader said optimistic investors will look to the household survey and take comfort in the change in the participation rate, which signals the drop in unemployment is a positive, and not because fewer workers are looking for work. The pessimists will look at the headline nonfarm payrolls and the fact that December saw only a 1,000-gain revision to 75,000.

Now Fed Chair Janet Yellen's comments on the economy will take on even more importance when she testifies before Congress on Tuesday in her first public appearance since taking over from Ben Bernanke this week.

"They have another report before they meet so it's hard to say, plus you're going to get revisions. They're likely to look through this and blame some of it on the weather," Greenhaus said of the Fed.

(Read more: Markets fear U.S. chilled by more than weather)

"Well again, it's confused," said Ward McCarthy, chief financial economist at Jefferies. He also pointed to the weakness in the establishment survey versus the gains in the household survey.

FOMC not swayed by a single number: Fisher

"I really do think we're going to continue to see weather-related problems in the data. We're going to have to get a month of normal weather before we can tell what's going on," he said. "I think bottom line, the economy and the labor market are in better shape than the numbers show."

Diane Swonk, chief economist at Mesirow Financial, said the weather is clearly behind some elements of the report. For instance, there was a big drop in education workers, probably because of school closings, and there was also a big jump of 13,000 nonresidential specialty contractors, the type of workers that would fix things like frozen pipes and other storm damage.

But health care hiring was flat for a second month, and this is a change in trend, coincident with the Affordable Care Act. "It was recession proof. It's moderating and now. It's flat to down," said Swonk. "It's a stark shift. It's one we were expecting. They're not making their margins any longer. Economics has caught up to health care."

(Read more: Best growth in 10 years despite government headwinds)

Chris Rupkey, chief financial economist at Bank of Tokyo-Mitsubishi, found silver linings in the report. He noted that with annual benchmark revisions, there is more strength in the labor market than expected.

"The revision says March 2013 jobs are 369K higher than we thought," he wrote. "They also have found more jobs were created over the last 9 months of 2013. So today, the data show 2.322 million new jobs in 2013 ending December. An average of 193K per month. Then tack on the 113K new jobs in January 2014. The American economy is a veritable jobs-creating machine. 2.1 million in 2011, 2.2 million in 2012 and 2.3 million in 2013."

Rupkey also pointed out that the number of discouraged workers is not rising—837,000 was about the same as last year.

Besides cold weather, the drought in the west is also a concern. "The drought in California is certainly have a serious effect on their economy. So you'll be seeing it showing up in some of the economic data. I don't think it was a particularly big part of the story in the jobs numbers this month," said Jason Furman, chairman of the Council of Economic Advisers.

—By CNBC's Patti Domm. Follow her on Twitter @pattidomm.