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.

July Employment Report

This morning's job report surprised many people on the upside.  Though it was an OK report given the recent performance of the economy and labor market, there's still evidence of some distortions due to seasonal adjustments.  When the January employment report was released, I delved into the details and noticed an upward bias due to seasonal adjustments (see commentary).  Since then, I've been looking forward to the July report to provide further evidence of the effect of new seasonal adjustments.  Basically, seasonal adjustments are designed to remove the impact of employment patterns that typically occur at certain points in the year and are determined by prior trends (i.e., employment patterns from July 2011, July 2010, etc., are used to estimate the seasonal adjustments used for July 2012.  The Great Recession distorted the seasonal adjustments resulting in the economy appearing stronger in the Winter months followed by slowdowns in the Spring and rebounds in the summer.  For July 2012, if the average seasonal adjustment for 2002-2009 was used, this morning's report would have shown an increase of 122,000 jobs, 41,000 less than officially reported.  In fact, the seasonal adjustment for July was the most generous in the past decade (I only checked the data post-2000).  While seasonal adjustments are necessary to understand what's going on in the economy, unfortunately, seasonal adjustments in recent years have actually been somewhat misleading.

Moving on, the report shows a sluggish economy that is still growing.  Negatives tended to be seen from the household survey including the increase in the unemployment rate to 8.3%; increase in the "real" unemployment rate (U6) to 15%, decline in the employment-population ratio to 58.4%, and the decline in the labor force participation rate to 63.7%.  Given the sluggish job market, average hourly earnings have increased by 1.7% in the past year, resulting in almost no increase after inflation (PCE inflation is running at about 1.5%).

The main takeaway from this report is that the economy continues its weak recovery from the Great Recession.  With economic growth of under 2%, it's hard to imagine employment growth picking up or unemployment declining any time soon.  Still, it signals a weak recovery rather than a slip back into recession.

A good jobs report

There's alot to like about this morning's job report.  Though warmer than usual weather and seasonal adjustments may have played some role, there's clearly an underlying strengthening in the job market.  The economy has now added more than half a million private-sector jobs in the first 2 months of 2012.  While there's been criticism that a major reason for recent declines in the unemployment rate were due to people leaving the labor force, the participation rate actually increased from 63.7% to 63.9% in February as an additional 400,000+ adult women entered the labor force.  Other positive results include the lowest u6 measure of unemployment since January 2009 (14.9%); most of the jobs added were full time; those working part-time for economic reasons declined by 100,000, ...  Which industries added the most jobs?  Health care added almost 50,000 jobs; temp agencies added about 45,000; and employment in food services and drinking places rose by 40,000.  Though jobs in the latter two categories tend to be lower paying, the increase in temp jobs tends to be a positive sign for future job growth.
Does this mean that the economy is accelerating and strong growth is here to stay?  Looking back at 2011, the economy added almost 240,000 jobs a month from February to April, but then added just over 110,000 jobs per month from May to November.  Though employment grew by about 1.4% in 2011, GDP grew by 1.7%, indicating that growth in productivity was quite low.  In order to sustain job growth at this rate, economic growth needs to be closer to 3%.  Given consensus forecasts of about 2.5% growth along with a minor global slowdown (slower growth in China and Brazil along with a European recession) and high gas prices, the most likely scenario is modest economic growth with some downside risk, which implies a slowdown in employment growth as we go further into 2012.  The US economy will continue to make progress, barring a shock, but not robust growth by any historical standard. 

By the way, where do we stand compared to before the recession?  The economy still has 5.285 million fewer jobs than at the end of 2007, a decline of 3.8%.  On a more positive note, the US economy has added 3.45 million jobs since the low set in February 2010.

January Jobs Report

This morning's job report far exceeded expectations, indicating that the economy added 243,000 jobs in January (257,000 in the private sector) and the unemployment rate declined to 8.3%.  Jobs gains were widespread, evidence of a strengthening economy.  Does this mean that the economic recovery is beginning to shift into high gear?  Though this was a good report, there are some reasons to think that it overestimated the strength of the economy (to be discussed in another post).  Let's take a quick look at some of the key numbers:

• The participation rate was 63.7%, setting a new low for this period and is the lowest since March 1983.  If it declines a little more (63.5%), it'll reach a rate not seen since the late 1970s.
• The employment-population ratio remained at 58.5%, slightly above the recent low of 58.2% (last time it was this low was 1983).
• The broad measure of unemployment (U6) declined to 15.1% (from 15.2%).
• The household survey showed a surge in jobs, most of which were part time.  Full-time employment rose by 80,000 while part time rose by about 700,000.

Add it up and it's a good report, the best since last Spring, but before assuming that the economy is ready for take-off, one should examine it further and compare it to other reports about the economy.

December Job Report

At first glance, this morning's job report looks good: an increase of 200,000 jobs along with a decline in the unemployment rate to 8.5%.  Job growth was widespread (a good sign).  According to the BLS, one interesting area for job growth was the courier and messenger industry, which added 42,000 jobs, reflecting the surge in online sales (FedEx and UPS are in the courrier industry).  In addition, the data used to estimate the unemployment rate was revised and now shows a steadier decline in the unemployment rate.  The unemployment rate has declined from 8.9% to 8.5% over the last 2 months, predominantly due to job growth as opposed to a decline in the labor force.  Even if the labor force had remained steady in the last 2 months, the unemployment rate would still have fallen to 8.6%, indicating that most of the decline in recent months was due to increased employment.

On a less positive note, over the last year, labor force participation has declined from 64.3% to 64% over the last 12 months while the employment-population ratio has increased slightly (from 58.3% to 58.5%).  Overall, the December report was relatively good.  It'll be interesting to see how much of it is sustainable as we enter 2012.  Also, if the economy adds 200,000 jobs per month, it will still be 2014 before we make up for the jobs lost during the Great Recession.