Who knew jobs data could be so exciting?
The September jobs report ignited a firestorm when Jack Welch, former General Electric chief executive officer and Reuters contributor, asserted (or implied, or wondered if) the unemployment rate had been politically doctored to give President Barack Obama an electoral advantage. After all, how can the unemployment rate drop a full 0.3 percentage points to 7.8 percent when the economy is creating only 114,000 jobs?
More on that later. First, let’s dismiss the notion that the integrity of the data-collection process was undermined. Anyone at all familiar with the production of federal economic statistics – at the Bureau of Labor Statistics, the Bureau of Economic Analysis, the Federal Reserve, or elsewhere – can appreciate the firewalls that exist between the professional collection, analysis and publication of economic data and the remainder of the agencies’ missions – especially their political appointees. It is unfathomable that these would be breached.
It is even more unfathomable that they would be breached without the career civil servants getting on the telephone to, say, Reuters and reporting the political manipulation within a nanosecond of it occurring. And still more unfathomable that such a breach would be initiated and covered up successfully, while only lowering the rate to 7.8 percent. Why not 6.8?
For many, that simply makes the puzzle all the more baffling. How did this happen?
The employment report, as we now all know, has two measures of job creation: the payroll survey and the household survey.
In September, the payroll survey – derived from asking employers how many people they employed that month – showed that the economy created 114,000 jobs. This is consistent with an economy growing at 1 to 2 percent. The household survey – derived from asking households who in the house has a job – showed a stunning 873,000 new jobs. This is this highest that number has been since June of 1983. This makes no sense; it is out of line with any of the other data on the economy for September.
Even more amazing, more than 560,000 of those are part-time jobs. That is really stunning. One would expect that as extended unemployment benefits expire (and they are), some workers would migrate back to employment – that is a tried-and-true economic link. Some of those might first end up in a part-time setting. But why 560,000? And why in September?
The fact is that the household survey has only 55,000 to 60,000 households in the sample. To make it representative, it has to cover gender, age, race and education level. That means that there are likely relatively few people in any particular “cell” – how many female, Asian-American, 34-year-old, high-school-educated individuals will be in the September survey. So there is always the chance that the sample is simply not representative of the U.S. population and a misleading indicator of what is going on in the labor market. That appears to be the case here.
So in my first reading of the Bureau of Labor Statistics report, I throw out the household survey.
Digging a bit further, the September jobs report is solid – assuming you have bought into the new normal. Yes, the economy is creating jobs. But the pace remains far too slow to dig the U.S. out of its malaise quickly. At a rate of 114,000 jobs per month, unemployment would not get back to 6.6 percent (the average unemployment rate two years into the average postwar recovery) until September 2026. That pace is far, far too slow.
Average hourly earnings finally increased in September. One component of recovery that has largely been missing, and unreported, is increases in real, disposable income. So rising earnings is no doubt a positive change for the economy.
Labor force participation is up 0.1 percent, to 63.6 percent. Over the past several months we have seen labor force participation plummet – indicating that people are giving up all hope of finding work. It’s positive to see consumer confidence increase. Americans who have been struggling for years are looking for work again – and finding it.
What we learned Monday is that the economy is not falling, but it is not accelerating. The economy is moving sideways.
The broadest measure of unemployment remains unchanged at 14.7 percent. We are still facing a number of downside risks, still generating too little income, and well behind schedule in recovering.
So, on the whole, September’s report was modestly positive and no cause for either conspiracy theory or celebration.
But get ready for more finger-pointing and controversy. In October, the statistical anomalies will likely disappear, the 873,000 jobs will evaporate and the unemployment rate will jump north just prior to the election.
Who knew economic data could be so exciting?
PHOTO: People wait in line to enter a job fair in New York, April 18, 2012. REUTERS/Shannon Stapleton