Did the Labor Department blow it? Here’s AEI economist Aparna Mathur:
There is something clearly wrong with the BLS jobs report for July. The household survey shows that households claimed to have lost 195,000 jobs. But the establishment survey shows that the economy added 163,000 jobs! That’s why even though the overall employment went up a lot(as per the establishment survey), the unemployment rate went up too(as per the household survey).”
As it so happens, the New York Times presciently warned of this very issue yesterday:
… one possible distortion that has arisen in recent years, thanks to the weakness of the economy, is that “seasonal adjustments make things look better than they are in the winter, when fewer workers are being let go than the government expects, and worse in the spring and summer, when the workers who were not let go cannot be rehired.”
The issue will loom particularly large on Friday, because the report for July is annually adjusted by a larger amount than for any other month save January, when holiday workers lose their jobs.
In the last 10 July jobs reports, dating back to 2002, the agency has added an average of 1.33 million jobs to its original estimate. Last year, for example, the agency estimated that payrolls declined by 1.3 million jobs in July, but it reported a seasonally adjusted increase of 96,000 jobs.
That places a huge premium on the accuracy of the adjustment: A 5 percent error in the adjustment would have shifted the reported total last July by two-thirds.
And even in the best of times, the bureau’s estimates are rarely that accurate.
The government has estimated an average change of 149,700 jobs in the last 10 July jobs reports, but it has since revised those estimates by an average of 92,900 jobs per year. In other words, the initial estimate is generally off by about 62 percent.
In three of those 10 years — 2002, 2003 and 2007 — the agency wasn’t even correct about whether the economy gained or lost jobs.
So take Friday’s report with a measure of caution.
So maybe the economy really did create just 100,000 jobs or so last month, as analysts expected. That would seem to sync better with many of the weak internals in the jobs report such as wages and hours, not to mention the household survey. Indeed, note what IHS Global Insight said today about the jobs aspect of the ISM Non-Manufacturing Index report, also out today;
The main negative for the index, however, was employment, which slipped to 49.3 from 52.3, the first contraction reading since last December. Yet this result is at odds with the July Employment Report, which also came out today.
And this is JPMorgan’s dour take on the monthly jobs report:
Away from the headline number, the other details in the establishment survey were unimpressive. The workweek was unchanged at 34.5 hours and average hourly earnings inched forward 0.1%. On a year-ago basis, average hourly earnings growth is the slowest on record, whether looked at through the all-employees measure at 1.7% (which series begins in 2007) or the production and non-supervisory worker measure at 1.3% (which series begins in 1965). Hours worked in both measures increased 0.1% last month.
The household survey measure of the labor market did not have a good month. Employment fell 195,000, unemployment rose 45,000 and the ranks of those not in the labor force swelled by 348,000. Part-time employment looked marginally better, rising 31,000 last month. The median duration of the unemployed sank from 19.8 months to 16.7 months. Some of this may simply be due to the fact that over the last three months the number of those unemployed under 14 weeks has increased by almost a half million as the labor market slowed. Another factor is the expiration of extended unemployment benefits in several large states recently, which may have reduced the self-classification as a jobseeker for the long-term unemployed. The widely-watched U-6 measure of unemployment — which includes marginally attached jobseekers and those working part-time for economic reasons — rose a tenth to 15.0%, its highest level since January.
Finally, recall what the Federal Reserve said in its recent Beige Book report: “Employment levels improved at a tepid pace.”
What’s really going on right now in the U.S. labor market? Does this report give the better view on what happened last month …
Or does this one …