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Economist warns against overacting to January’s lower-than-expected jobs numbers

February 7, 2014 at 6:09 PM EDT
Just 113,000 new jobs were added in January, according to the Labor Department’s monthly employment report. The numbers failed to meet expectations, but the unemployment rate nevertheless ticked down to 6.6 percent. Economics correspondent Paul Solman deciphers the numbers with Justin Wolfers of the Brookings Institution.
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JUDY WOODRUFF: Now: sorting through the data of the January jobs report and what it tells us about the state of the American labor market.

NewsHour economics correspondent Paul Solman spent this day trying to unpack both the positives and the negatives. It’s part of his ongoing reporting Making Sense of financial news.

PAUL SOLMAN: For a second straight month, job growth failed to live up to economists’ expectations. Just 113,000 jobs were added last month, a dismal 75,000 in December.

For some analysis, we spoke to an eminent economist at the Brookings Institution. No, not this guy. He just happened to be walking through our shot. This guy, senior fellow Justin Wolfers. His take on today’s numbers: The employment situation hasn’t gotten worse.

JUSTIN WOLFERS, Brookings Institution: Whatever you thought yesterday is pretty much what you should feel today. My view has been, the U.S. economy has been creating about 150,000 to 200,000 jobs a month every month for the past three years. The headlines of today’s report make it look like that didn’t happen, but you get into the details, and it looks like, actually, that’s what the economy has kept on doing.

PAUL SOLMAN: What do you mean?  One hundred and thirteen thousand jobs is the number from the establishment survey.

JUSTIN WOLFERS: The jobs report is actually two surveys. Survey a bunch of firms. They told us that they created 113,000 jobs last month. We also survey households and ask people, do you have a job?  And if you look at that number instead, it says we created 616,000 jobs, a bonanza.

So, we got two measures. And the question is, how would you think about both them?  I would put most of my weight on the firm survey, but even a billion weight on a terrific number, a lot of weight on a moderately disappointing number, on average says things are probably OK.

PAUL SOLMAN: But doesn’t this call into question the legitimacy of the monthly jobs data?  One survey, 600,000 more people are working, the other survey, supposedly the more reliable, barely 100,000 more.

JUSTIN WOLFERS: This is just the nature of statistics. Data are noisy. Our job as economists is to look through the data and try and figure out the signal.

So we shouldn’t go crazy on any single number. A lot of people will, will say, oh, the house — the firm phone survey says only 113,000 jobs are created; the economy is falling apart. That’s the wrong thing. This is a noisy number.

PAUL SOLMAN: Noisy meaning?

JUSTIN WOLFERS: There’s a big margin of error around the.

As much as they said employment grew by 113,000, in fact, they’re only 90 percent sure that it grew between 23,000 and 203,000. So, let’s look over the past three months, and the payroll survey tells us that we have been creating 154,000 jobs a month. That’s reasonably healthy, not great, but the recovery continues.

PAUL SOLMAN: Or continues, to look at the glass half-empty, barely.

Last year, firms added an average of 194,000 jobs a month. Slower hiring this year could be a sign of a floundering economy. And, yes, while today’s drop in the unemployment rate would seem to be a positive, the story for months now has been that the rate has dropped because so many people have given up the job hunt. But that’s not the story of the falling unemployment rate this time around.

JUSTIN WOLFERS: It fell this month because a lot of people got jobs, not because they’re fallen out of labor force. So, we have seen unemployment now at 6.6 percent.

The good news part of that is, it’s falling, and it’s falling quite rapidly, well, over a percentage point down over the past year. The bad news, let’s not confuse changes with levels. The bad news is, 6.6 percent of the labor force is still unemployed. That’s historically high, a lot of households suffering. There’s a lot we can do to do better.

PAUL SOLMAN: And there are still nearly four million long-term unemployed whose job search has lasted 27 weeks or more. For them, this week’s failure in the Senate to extend emergency unemployment insurance offers little solace.

JUDY WOODRUFF: For an even more inclusive picture of un- and under-employment, Paul has devised his Solman Scale. You can find that on our Making Sense page on our Web site.