Nearly every economic survey coming out recently has been positive, and expectations had been that today's data on non-farm payrolls and the accompanying unemployment rate would have been more of the same. To wit, the consensus forecast for such data had been for payroll growth of 190,000 and a flattish jobless rate of 7.0%. 

What we received, however, was job creation last month of just 74,000 and an accompanying unemployment rate of 6.7%. The two are clearly not working in unison. But there is an explanation.

For starters, the job growth number was awful, being little more than a third of the expectation. What led to the accompanying drop in the jobless rate was that some of the unemployed simply left the labor market. When such exits occur, and people who are out of work simply stop looking, they are no longer classified officially as unemployed. Evidence of this shrinking labor force was supplied by the aggregate report, which showed that the total U.S. labor force participation had fallen from 63.0% in November to 62.8% during the month of December.

Moreover, the data for November and October have been revised. Specifically, job growth has shifted from 203,000 to 241,000 in November, but the jobless rate did not change. In October, the job creation level held steady at 200,000. However, the jobless rate was pared from 7.3% to 7.2%.

Taken as whole, this was not a confidence-building report. Should this trend of lower job creation persist, it would likely lead to reduced spending by consumers and a slower pace of economic growth in the months to come. That is clearly the bad news. Conversely, for the stock market, the results are less well defined. True, profit growth might well slow. However, it also is possible that the Federal Reserve could slow its monetary tapering schedule.

In the short run, though, it probably is not a good idea to jump to conclusions. For one thing, we have had short-term deviations before. Also, the run of bad weather we saw last month and thus far in January across the country could have influenced hiring trends. Our sense is that it would not be a bad idea to sit and pause for a month or two to see if this latest report is a trend or an outlier. For now, we still think fourth-quarter GDP growth likely topped 2.5% by a small margin. On point, the polar vortex affecting much of the nation so far in January could be a major story as far as the current month's report (it will be released early next month). 

At the time of this article's writing, the author did not have positions in any of the companies mentioned.