Friday, November 8, 2013

October Job Market Report and More

So much has happened since the last time I was able to post.  The latest job market report was released this morning and it indicated that 204,000 jobs were added last month while the unemployment rate ticked up to 7.3%.  What impact did the government shutdown have?  It had little direct effect on the number of jobs created (based on the establishment survey) since government workers were either back on the job or counted as on the payroll since they were promised back pay.  However, government workers on furlough were counted as unemployed based on the household survey (those who were contacted said either that they were on temporary layoff or absent from work).  Beneath the surface, there was quite a few interesting details (interesting by economic standards!).

The labor force participation rate plummeted to 62.8% (from 63.2%); that's the lowest since March 1978 and tied for the largest one-month decline in the last 30 years.  Similarly, the employment-population ratio fell from 58.6% to 58.3%, now just 0.1% above the post-recession low.  Some of the decline in the employment-population ratio was due to furloughed government workers, but this should not have affect the labor force participation rate.  A person is considered to be in the labor force if they have a job or if they are unemployed, including on temporary layoff or absent from work.  It'll be interesting to see if there was some fluke in the data or if this actually does represent a decline in the true participation rate.  As noted in the past, a lower participation rate results in a lower unemployment rate without any real improvement in the job market (a person is not considered to be unemployed if they are not participating in the job market; i.e., they don't have a job and are not looking for one).  I tend to think that the participation rate was underestimated this month, causing it to bounce back somewhat next time.

What industries contributed to the employment gains?  Nearly half the job gains in October were due to retail trade and leisure/hospitality.  Over the last 3 months (July-October), nearly 40% of job gains in the private sector were in those two industries.

Add it up and it was a pretty good report by today's standards (definitely not a strong report, but reflective of modest  to moderate growth).  The most puzzling aspect is the huge decline in the participation rate, which is hard to explain at first glance.