The employment situation report released this morning was a mixed bag.
Nonfarm payroll employment increased by 114,000 — this number is better than zero, but we’re going to need significantly stronger job growth in order to substantively improve the labor market.
Revisions to the last two months added 86,000 jobs, bringing the three-month moving average to 146,000. By comparison, the average monthly change in nonfarm payroll employment in 2011 was 153,000. We need to be doing better than we did 2011, not worse.
The jobs numbers are usually emphasized by economists because the sampling error in the payroll survey is much less than in the household survey. However, my guess is that the press will focus more on the household survey for this month, which produces the unemployment rate.
This month’s household survey is puzzling when viewed in light of the payroll survey and indicators for the broader economy. The headline unemployment rate fell from 8.1 percent to 7.8 percent, despite the fact that the labor force increased by 418,000. There were a whopping 456,000 fewer unemployed this month than last, and an incredible 873,000 more employed. The employment-to-population ration edged up by a solid 0.4 percentage points.
Despite this very good news, the U6 unemployment rate — the total unemployed plus persons marginally attached to the labor force plus persons employed part-time for economic reasons — remained unchanged at 14.7 percent from last month. How is it that the unemployment rate dropped but the U6 rate was flat?
The number of people employed part-time who want full-time jobs increased by 582,000 over last month, which helps explain why the U6 rate remained unchanged while the headline unemployment rate declined to 7.8 percent. There are currently 8.6 million people who are holding a part-time job but want full-time employment.
When the job numbers and the unemployment rate tell different stories it’s important to remember that they come from different surveys and measure different things. For example, the divergence this month could be driven by business creation, which would be captured better by the household survey than by the payroll survey. On the other hand, the household survey offers a much noisier measure than the payroll survey, so we could see a higher unemployment rate next month.
Something that has been floating around the internet needs to be smacked down immediately: There’s no interference with the Bureau of Labor Statistics numbers. The White House didn’t lean on the BLS and influence them to kick the unemployment rate below 8 percent. That talk should be confined to crazytown.
Both presidential campaigns will spin this report in their favor, but in my opinion the qualitative story of the labor market remains unchanged: We have too few employed, too few jobs, too many working part-time who want full-time work, and too many long-term unemployed. And we aren’t correcting those problems fast enough — the recovery continues to be painfully slow. We’re not moving backwards, but we’re closer to treading water than we are to significant improvement.
A great challenge for the next president is how to deal with this problem — this problem of great human consequence.