Why the jobs report is better than it looks
The January jobs report was a mixed bag. Unemployment plunged for the second month in a row, but the increase in payroll employment of 36,000 jobs was far less than the expected ~150,000. Nevertheless it's an encouraging report, especially in the context of other recently released economic indicators.
Two straight months of unemployment declines of 0.4 percent is big news and looks a lot like the Reagan economic recovery of 1983 -- read the NYT's Floyd Norris's column on this from yesterday. Normally people discount the unemployment report because it's based on an uncertain telephone survey, can jump around and depends on the technical definition of unemployment, which means actively looking for a job.
But perhaps the unemployment survey is telling us more about the recovery than the payroll survey. The payroll survey has a habit of missing new jobs in a recovery. The Labor Department can't survey employers that it doesn't know exist, and in recoveries new companies are formed. They hire people totally off the Labor Department' radar screen, at least initially.
In past recoveries the revised numbers have shown much stronger job growth than was initially reported. Already the Labor Department has been pretty consistently revising payroll employment upward in the months after the initial report comes out. It happened again in this morning's report for December and November. My bet is that the January payroll numbers will be revised upward later.
There is other good news out there. Consumer spending was decent in the fourth quarter. Industry surveys are showing positive results. Consumer confidence is up. The most recent unemployment claims were down sharply. Those data suggest that a 0.8 percent decline in unemployment over two months shows the start of a jobs recovery.
UPDATE: Here is my conversation with WBAL's Bill Vanko about this after the results came out at 8:30.
Comments
Jay,
If the number of Americans leaving the workforce is increasing (which is how the unemployment rate decreased) how is that a good thing?
Consider if the number of seats for sale at Camden yards was reduced to 20,000. Then when the 12,000 fans show up to an Orioles game the team could claim that a greater percentage of seats were sold out.
But the team would still suck and attendance would still be in decline.
The economy is simply not expanding in real terms. You can put icing on the pig but it is still a pig.
Posted by: Dan | February 4, 2011 9:24 AM
The jobless rate is down to 9.0 percent, a huge step in the right direction for the economy. We hope that new hiring includes older workers, who have been unemployed at higher rates and for longer periods of time during the Great Recession than ever before.
Since February of 2010, we have been conducting video interviews with Americans who are Over 50 and Out of Work. http://www.overfiftyandoutofwork.com/
Most of them do not have enough savings to maintain their standard of living during retirement. If they can get back to work as the economy rebounds, they will be better off, as will the overall economy.
If older workers can continue to work and defer claiming Social Security benefits until they reach the age of full eligibility or beyond, they will increase their future monthly payments and make maintaining their standard of living over their lifetimes more likely.
By working several extra years, older Americans also reduce the financial pressures on Social Security caused by the boomer demographic bulge. If they are able to work longer, they are contributing to revenues, rather than drawing benefits, and they reduce the pressure on the federal budget, benefiting the overall economy.
Posted by: Nikolia Apostolou | February 4, 2011 9:43 AM
To Nikolia,
You present a wonderful theory. It does not appear to be working practice. A greater number of people are leaving the workforce rather than entering it. Perhaps they are choosing to collect their Social Security now rather than work and defer the benefit till later. This will increase pressures on federal budgets.
I do believe that if the government greatly reduced transfer payments (whether they be unemployment, food stamps, Social Security, etc) a huge number of people would go back to work. In other words, as long as the government is willing to pay people to not work many will choose not to! Do you believe the politicians have the guts to kick junior off the coach and out into the workforce? I have my doubts.
Posted by: Dan | February 4, 2011 10:07 AM
National unemployment statistic is entirely misleading
There may not be a bigger joke running than the monthly unemployment figure released by the United States Labor Department. Look no further than the January, 2011 number announced today to reinforce this notion.
http://philiptortora.blogspot.com/2011/02/national-unemployment-statistic-is.html
Posted by: Philip Tortora | February 4, 2011 10:09 AM
Dan, lipstick, it's lipstick on a pig.
Posted by: Jeff | February 4, 2011 10:25 AM
Jay,
Why didn't you mention the BLS U-6 indiciator which is a truer measure of unemployment. This measures the number of people who are unemployed, underemployed or have given up. The true rate of unemployment actually went up to over the 19% mark? In all fairness, why no mention of U-6??
Posted by: Mike | February 4, 2011 10:13 PM
U6 is 17.3% not seasonally adjusted, 16.1% with the adjustment. Scroll down to table A-15: Alternative measures of labor underutilization.
http://stats.bls.gov/news.release/empsit.htm
Jay, you raise an interesting possibility regarding the household survey possibly picking up growth that the payroll survey overlooked.
The labor force was unchanged, so the discouraged workers/lower the denominator argument that has been valid for months, cannot be made here. However, does anyone really believe that 600,000 people found work last month? That's exactly what the household survey says. 600k new jobs in one month would be the most net jobs ever created in such a short time. Certainly this would entail economic activity in the order of magnitude that would show better than +36k net in the payroll survey.
Posted by: Josh Dowlut | February 5, 2011 6:17 PM