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The Bureau of Labor Statistics reported yesterday that the unemployment rate has fallen from 9.8% in November to 9.0% in January, as big a two-month drop as we've seen in the last 50 years (hooray!). But in the same report, BLS indicated that their seasonally adjusted estimate of the number of Americans employed on nonfarm payrolls increased in January by an anemic 36,000 (oh dear!). Reconciling the very contradictory claims is even harder than usual, but I'll give it a try.
We can start with the fact that the two numbers come from two different surveys and are measuring different things. The unemployment rate comes from a survey of households, and counts someone as employed if they did any work at all as a paid employee or worked in their own business during the surveyed week, and also people who have a regular job but missed work due to temporary factors such as illness or bad weather. The nonfarm payrolls, on the other hand, come from surveys of establishments themselves. If bad weather caused someone to miss work for a two-week payroll period that included the 12th of the month, that person would not be counted as employed according to the establishment survey. Rebecca Wilder notes that Nomura economists accurately predicted prior to the BLS release that weather distortions would cause the reported nonfarm payroll gain to come in well below 56,000. The same Nomura report noted:
In one of the largest first reported declines on record, the BLS in its February 7, 1996 report calculated that non-farm payrolls FELL by 201,000 from the previous month. The outsized decline hit both manufacturing (-72,000) and services (141,000) but the construction industry registered a net job gain of 13,000. At the time, the BLS blamed the big winter storm for skewing the job loss and a month later reported that payrolls surged by 705,000 in February after a revised drop of 188,000 in January.
But even if we stick to just the household survey, there is still some serious reconciliation required. We can start with the fact that the household survey reports a value for the civilian noninstitutional population for January that was 185,000 lower than the value for December. Obviously that's not what really happened, and here's the explanation:
BLS introduces the annual population control adjustments into the CPS estimates beginning with the January data. The adjustment can either increase or decrease the population level, depending on whether the latest information indicates the population estimates have trended too high or low. Conceptually, the population control adjustments represent the cumulative over- or under-estimation of the population since the last decennial census point.
That makes the December-to-January comparison of any of the household survey magnitudes a bit problematic. But, as Rebecca also notes, Table C in the BLS report suggests that one might just subtract the population control effects from the published December-to-January change in employment to arrive at an implied net gain in employment of 589,000 jobs according to the household survey (hooray again!). Declining participation rates have been one factor in earlier improvements in the reported unemployment rate. But it looks reasonable to me to interpret the further improvements in January as indicating real progress.
Here's my bottom line: if you had concluded (and I had) from recent sales data and manager surveys that we're finally seeing the economy growing solidly, there's nothing in the latest jobs report to persuade you otherwise.
For other reactions, please check out Free Exchange, Zero Hedge, Curious Capitalist, Calculated Risk ([1], [2]), and WSJ Real Time Economics ([1], [2]). Various rates inferred from household survey. Source: Calculated Risk,
Posted by James Hamilton at February 5, 2011 06:53 AM
as i commented on rebecca's post: over the past year we've only added back 1.1 million of the 8.4 million jobs that were lost during the recession; however, just to create jobs to make up for the increase in the population, we should be adding 1.5 million jobs a year; thus at the rate jobs are being added in this "recovery", the labor force participation rate will continue to shrink, and we'll never get out of this hole...
thats not good news...
Posted by: rjs at February 5, 2011 09:24 AM
with all due respect, but you are taking all statistical data as a true and honest representation of reality, probably you brush off hedonical and substitute adjustments concerning CPI as immaterial as well. just because they call it unemployment rate, it does not mean it is such, i myself was surpized to find out that flour has about 18% wheat, packed sugar about 20% sugar substance, it was not really so 20 years ago... 0.8% drop in the unemployment rate all the while new jobs do not even keep up with the workforce growth? it is a shame that this is probably the most important gauge of economic activity, yet is turned into such a poor quality farce.
Posted by: baychev at February 5, 2011 09:49 AM
OK, 900,000 jobs in two months is not trivial and it is movement in the right direction. But to put things in perspective, even taking into account the population correction factor, roughly 40% of the 0.8 points drop in the unemployment rate in the last two months was due to people leaving the labor force. So I'm not quite ready to break out the champagne just yet. Let's see what next month's numbers look like. But if the economy is finally turning the corner there's only one credible reason: QE2.
Posted by: Mark A. Sadowski at February 5, 2011 11:23 AM
Mark A. Sadowski if the economy is finally turning the corner there's only one credible reason: QE2.
While I support QE2 and think it will have a positive effect on the economy, I can't quite swallow QE2 be large enough to qualify as a "credible reason" for the possible turnaround. I'm sure it helped, but I don't think any of the models predicted anything more than a modest bump in GDP from QE2. What's not explained is the transmission mechanism from GDP growth to job growth. My own pet theory is that job growth is probably related to the fact that businesses are starting to worry about wringing out too much productivity from the current workforce. Businesses that count on the kinds of labor productivity growth that we've seen over the last couple of years are businesses that are putting themselves at risk over the longer run. Businesses are sitting on a lot of excess capital equipment and buildings, but skeleton work forces to operate that capital. If you want to employ all that idle capital, then you better hire now when the hirings good.
Posted by: 2slugbaits at February 5, 2011 01:10 PM
Think it belongs here:
from http://www.zerohedge.com
"Courtesy of today's full year revision announced by the BLS, and a granular sort by John Poehling, we have discovered that while revisions added a whopping 55k jobs in the years 2006-2008, NFPs have now been revised to remove 538k jobs in the 2009-2010 period. In other words, based on data revisions, under President Obama, America has suddenly created over half a million jobs less (even if all of them are part time) simply due to statistical adjustments. We won't even go into analyzing just how much worse the S&P would be trading if all those monthly "upside" NFP reports had reflected true and not completely fudged numbers. At an average 22.4K downward monthly revision for every single monthly NFP report in the past two years, we are 100% confident that not even Iosif Vissarionovich Bernanke would be able to offset the market plunge that would ensue each and every of the past 24 months... if fundamentals were ever to be remotely meaningful again, of course. "
In normal statistical measurments, mistakes tend to happen to both directions of the reported results. In the USA monthly non-farm payrolls reports, the statistically improbable shift has always happened in one direction, to overstate the numbers of jobs added.
Posted by: Ivars at February 6, 2011 03:06 AM
# of absolute jobs in the economy: 12/2010 - 130.7 million; 01/2011 - 130.2 million
Where did the 500K go?
9% unemployment? This is a function of participation in the labor rate. Less participation (1.5 million) better numbers.
65 million bread winner jobs. 6.6 million lost in the great recession; 200K lost since the recession officially ended eleven months ago.
The US Economy is not producing the jobs it had done in the past.
Einstein's definition of Insanity: "The definition of insanity is doing the same thing over and over again and expecting different results".
QE2 meets Einstein's definition. QE2 has proven one thing: printing money to create jobs does not work. Printing money creates bubbles, inflation and ultimately adds to our debt.
40 billion in nominal GDP per month. While we're issuing 125 billion dollars of bonds per month.
Two words: Good luck.
Posted by: Babinich at February 6, 2011 04:08 AM
Maybe this has been debunked, but I was under the impression that the household survey did a better job of picking up small business employment compared to the establishment survey.
I also recall reading that banks are beginning to loosen credit a bit for small business.
Didn't the household survey and establishment survery also diverge around the last turning point in employment (the peak)?
Lots of "if I recall correctly" there, so I may be off the mark.
Posted by: tj at February 6, 2011 06:06 AM
Babinich printing money to create jobs does not work. Printing money creates bubbles, inflation and ultimately adds to our debt.
Correct me if I'm wrong, but I don't believe anyone is "printing money" to support QE2.
And how exactly does either QE2 or printing money add to our debt? The very small downside risk of QE2 is that it might, if badly mishandled, generate more inflation. But again, how does inflation add to our debt? Seems to me that inflation reduces the real burden of debt for debtors, and it's debtors who are asymmetrically constrained right now. A little bit of inflation is certainly preferable to contined disinflation or, worse yet, deflation.
Posted by: 2slugbaits at February 6, 2011 06:50 AM
It seems that Tunisians and Egyptians (as well as savers or people who live from salaries) are not so happy about little inflation.
Little exported inflation creates worldwide political instability which in turn increases both commodity (notably oil) prices and keeps the value of USD artificially high.
So in the end, and not so long from the start of QE2 "little" inflation returns to the USA in the form of higher priced imports and less exports, keeping trade balance in extreme negative, which slows growth and thus increases the need to borrow more or print more (government borrowing from FED is printing, is this not obvious?).
Posted by: Ivars at February 6, 2011 09:02 AM
Technical ( long term response of markets to shocks) view on 2011-2012, double dip and oil prices:
http://saposjoint.net/Forum/viewtopic.php?f=14&t=2626
Posted by: Ivars at February 6, 2011 12:13 PM
Ivars Okay, let's see if I got this right. Commodity food prices are rising not because of negative supply shocks over the last two years of bad harvests; and not because of positive demand shocks from rebounding growth in developing countries; but because the Fed decided to deposit a few electrons is some bank reserve accounts in exchange for longer term securities. Is that your theory? And you don't feel at all embarrassed about posting crackpot economics to a well regarded blog that is read by many formidable economists? Thanks for clearing all that up.
Posted by: 2slugbaits at February 6, 2011 12:49 PM
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