Pimco's Mohamed El-Erian: Jobs Report 'Somewhere Between Puzzling and Worrisome'

Friday, 10 Jan 2014 03:54 PM

By Dan Weil

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It's unclear exactly what to make of Friday's weak December jobs report, but it raises some concern about the economy's strength, said Pimco CEO Mohamed El-Erian.

Non-farm payrolls gained only 74,000 last month, compared to a median forecast of a 197,000 increase in Bloomberg's survey of economists. Payrolls rose 241,000 in November.

Weather may have been a factor last month, as it kept 273,000 workers home.

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The December report "is somewhere between puzzling and worrisome," El-Erian told Bloomberg TV. "Puzzling because it is such a strange number. The 74,000 jobs . . . are inconsistent with lots of other data."

The worrisome side includes the fact that the labor force participation rate matched a 35-year low in December, El-Erian says. And the long-term unemployed, those out of work for at least 27 weeks, account for 37 percent of the jobless.

But are the December numbers just an aberration?

"I think it is in between," El-Erian said. "Definitely there's an impact of weather. People have to sort out how much. But I think fundamentally it reflects an economy that is still trying to gain enough momentum."

The economy is like a car stuck between second and third gear, El-Erian said. "It can drive in a much higher gear and isn't there yet."

As for the Federal Reserve, it will continue to taper, finishing its quantitative easing by year-end, El-Erian predicts. But the jobs statistics reinforce "something the market has forgotten in the last few weeks," that the Fed won't raise short-term interest rates until 2016, he said.

El-Erian said the Fed prepared for a weak jobs report like this in three ways.

"First, they told us that the unemployment rate, now 6.7 percent, does not capture the extent of labor market issues," he said.

Second, Fed officials have reminded observers to watch inflation, which the Fed thinks is too low, El-Erian said. "So don't just obsess with the unemployment number."

And finally, "they reminded us that they're worried about financial soundness."

El-Erian cautions against putting too much focus on a single month's jobs data. "Most economists will tell you that there is about a plus to minus 80,000 error range for each monthly number," he said.

"The important thing is to look at averages over time and to look at the other elements, not just to obsess with one number."

Julia Coronado, chief United States economist at BNP Paribas, views the jobs report much like El-Erian.

"Weather is clearly playing a role, and you don’t want to overreact to any one number," she told The New York Times, estimating that the nasty climate took 75,000 jobs off December payrolls.

But, "what it does say is that we’re not in takeoff mode in the labor market," she said. "It’s not so much weakness in hiring as lack of vitality. We’re treading water."

Editor’s Note: These 38 Dates Are Key to Bagging $313,038

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