Illustration by Bloomberg Businessweek
This Friday's U.S. jobs report will be closely watched by job seekers, economists, the White House, and GOP presidential candidates. In Bloomberg's latest survey of economists, the consensus view is that the unemployment rate will remain at 8.3 percent. Of the 73 economists surveyed, 33 predicted an unemployment rate of 8.3 percent. Twenty-seven think the rate will drop to 8.2 percent. What's interesting is the rationale of the economists at either end of the survey.
The spread of opinions ranges from 8.1 percent to 8.5 percent. At the low end of the spectrum is Brian M. Jones, senior U.S. economist at Société Générale (SGE),and the only economist surveyed by Bloomberg to predict a decrease in the unemployment rate all the way to 8.1 percent. Jones says he based his prediction on the latest change in what he calls the augmented insured unemployment rate, which recently dropped 0.2 percent.
Jones defines this as the total number of people collecting both state and federal unemployment benefits, divided by the insured population. It adjusts for the fact that regular state unemployment benefits last for 26 weeks, by including people who then roll into other state and federal benefit programs. "The only way you drop off those roles is if you find a job," says Jones. In the last Bloomberg unemployment survey, Jones predicted the rate would fall to 8.4 percent.
On the other end of the spectrum is Guy LeBas, chief fixed-income strategist at Janney Montgomery Scott and one of three economists predicting the rate will jump to 8.5 percent. In an interview, LeBas says he based his forecast on a sudden divergence between household and establishment data from the unemployment report released last month. The change in non-population adjusted household employment from December to January reflected an increase of 847,000 jobs. The reported nonfarms payroll increase was 243,000, which was also not adjusted for population change.
LeBas attributes a portion of the divergence to a decline in the number of people holding two jobs. As opposed to the establishment survey, which asks companies how many jobs were created, "the household survey simply asks households if they are employed," says LeBas. That created an artificially low unemployment rate in January that he's betting will reverse itself in February as the establishment survey evens out. "Unemployment will likely rise because of technical factors, not because of weaker labor conditions," says LeBas, who's forecasting the addition of 200,000 jobs for February.
Long term, LeBas foresees a jobs recovery built on "solid but not spectacular" fundamentals that's ultimately capped by the current overhang of low interest rates. At some point, rates will have to go up, which will be a drag on job creation. "There is nothing that's convinced me that employment is currently self-sustaining," says Lebas. In the last Bloomberg survey, LeBas forecast the unemployment rate would rise from 8.5 to 8.6 percent.
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