The first thing to understand about today’s employment report is that January is adjustment month. The Bureau of Labor Statistics (BLS) incorporates new data affecting both the establishment and household surveys. The establishment data is revised based on benchmark data, principally from unemployment insurance tax records from March 2010, and also based on updated seasonal adjustment factors. The process resulted in new payroll employment figures back to January 2006. The revisions lowered total nonfarm payroll employment by 378 thousand in March 2010 and by 452 thousand for December. The revised figures show a net gain of 948 thousand jobs for 2010, instead of 1.11 million pre-revision.

The household data incorporates new population estimates based on updated information, assumptions and methodology from the Census Bureau. In contrast to the establishment survey, the BLS does not revise household survey estimates for prior months. The BLS does however provide a special table showing the December to January changes reflecting the effect of the new population estimates. The new estimates generally lowered labor force measures: the civilian non-institutionalized population by 347 thousand, the civilian labor force by 504 thousand, the number of employed by 472 thousand, and the number of unemployed by 32 thousand. Those not in the labor force increased by 157 thousand.

The big news in today’s report is the household survey showing a decline in the unemployment rate from 9.4 to 9.0 percent. While in previous months movements in the unemployment rate have been driven largely by changes in the labor force, today’s report shows no change from December to January in the labor force and an increase of 589 thousand in the number employed, matched by a reduction in the number unemployed of 590 thousand. This is great news if it’s true.

Unfortunately, the establishment survey showed a meager increase of 36 thousand in payroll employment. Employment was up in manufacturing and retail trade but down in construction and transportation, with some analysts blaming severe weather for the deceleration from last month’s revised growth of 121 thousand and average over last year’s fourth quarter of 128 thousand, and holding out the hope of “catch up” growth in coming months.

This is a big but not unprecedented discrepancy between the two surveys. In general, they differ by level, largely because of the household survey’s inclusion of the self-employed, but they typically agree on direction. See chart.

So, bad weather and a surge in self-employment could help to explain some of today’s apparent inconsistency. But today’s reduction in the unemployment rate, while finally based on employment growth rather than labor force contraction, looks a little too good to be true based on the establishment survey and the lackluster growth from both surveys over the last twelve months. At this point, the February and March numbers have a lot of convincing to do before the labor market looks like it’s really getting back on its feet.