Friday, October 5, 2012

September Job Report

The government released the September job report this morning and there were some surprises.  The headline numbers show that the unemployment rate fell to 7.8% (lowest since January 2009) while 114,000 jobs were added.  How did the unemployment rate fall from 8.1% to 7.8%?  Unlike the last year or two, the labor force participation rate actually rose slightly to 63.6%.  So what happened?  The household survery showed an increase of over 800,000 jobs in September.  However 582,000 of those jobs are due to more people working part-time for economic reasons (which rose from 8 million to 8.6 million people).  That's why that, even though the unemployment declined, the broader measure of unemployment (U6) was unchanged at 14.7%.  On a related note, some have suggested that the household survey may be capturing an increase in self-employed workers which are not fully captured by the establishment survey.  However, using nonseasonally-adjusted numbers, self-employed workers declined by 19,000 (including both incorporated and unincorporated) while total jobs added was 775,000 (based on the household survey).  Thus, a surge in self-employed workers doesn't seem to explain the surge in employment based on the household survey.

Moving over to the establishment survey, the private sector added 104,000 jobs while the government added 10,000.  Leading industries include ambulatory and health services (+29,800), food and accomodation service (+15,700), and state government education (+13,600).  It should be noted that revisions show about 40,000 more jobs created than previously reported in both July and August.

Given the different pictures of the job market presented by the two surveys, let's take a look at charts of employment growth according to each.  The following is a chart of the number of jobs created according to the household survey each month over the last decade.  It should be noted than some of the January numbers are misleading due to adjustments in population control.

An here's the monthly employment gains in private sector payrolls (establishment survey).

As is evident, the establishment survey is much more stable.  Most economists consider the establishment survey to be a more reliable measure of the job market.  So what's my takeaway from this morning's report?  A continuation of modest employment growth (private employment rose by 104,000 in September and 97,000 in August).  The household survey tends to be volatile and seems to be misleading this month.  After accounting for population controls, it showed the most rapid growth in employment since 1983.  One other piece of trivia.  this was the third larvest positive gap between the household and establishment survey (after adjusting for population controls) in the last 50 years.  Did the economy creat anywhere near 873,000 jobs resulting in a significant decline in the unemployment rate?  Not likely.  The payroll number is much more align with most economic data which indicate a sluggish economy which is still experiencing a a slow recovery.