Jobs report too ‘weird’ to just blame the weather

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

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.

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 moreWeak jobs number alone won’t sway Fed: Fisher)

“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 moreMarkets fear U.S. chilled by more than weather)

“Well again, it’s confused,” said Ward McCarthy, chief financial economist at Jefferies. He pointed to the weakness in the establishment survey versus the gains in the household survey from which the jobless rate is derived.

“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.”

(Read moreBest growth in 10 years despite government headwinds)

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

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