Jobs report: ‘Whatever you thought yesterday is pretty much what you should feel today’
“Weakness Continues…”; “…Latest Worrying Sign”; “…Employment Growth Disappoints.” Those were the headlines Friday morning shortly after the Bureau of Labor Statistics released the unemployment and jobs data for January 2013: a mere 113,000 jobs added last month, though the unemployment rate did fall to 6.6 percent.
On the surface, it seemed a far from rosy report. Economists were expecting 180,000 new jobs, not barely 100,000. And December’s dismal job creation record (74,000) was only revised upward by a scant 1,000 jobs. (November, it should be noted, gained an additional 30,000 jobs, on top of the roughly 240,000 originally reported.) But it’s January’s lower-than-expected total that’s fueling concerns, to quote Nelson Schwartz in the Times, that “the labor market is poised for yet another slowdown.”
The unemployment rate continued to tick down by a tenth of a percentage point from where it was in December. A year ago, it was 7.9 percent. But, for much of the past year, top economists had lamented the fact that the unemployment rate hasn’t been falling for the right reasons. Instead, the percentage of unemployed people had declined because people had dropped out of the labor force; in other words, they were no longer actively searching for a job, and therefore, couldn’t be counted as unemployed.
This month, however, the labor force participation rate rose to 63 percent, while the employment-to-population ratio increased slightly — to 58.8 percent.
There was other good news. The number of people working part-time for economic reasons declined by about half a million. Partly as a result, our own more inclusive measure of under- and unemployment, the “Solman Scale U7,” declined to 14.7 percent. And here’s a curious fact: according to the monthly survey of households, total employment increased by 616,000 over the month.
But wait a minute: Isn’t 113,000 the headline number? As we’ve explained on Making Sense before, the jobs data that drive the market and media circus the first Friday of each month come from two separate surveys, which sometimes tell two different stories. The 113,000 figure comes from what the Bureau of Labor Statistics calls the “establishment survey” of employers. The unemployment rate is derived from the “household survey.”
The Brookings Institution’s Justin Wolfers, our interviewee in Friday night’s Making Sense report, puts more stock in the establishment survey’s accuracy. But when the household survey is reporting such a different story (616,000 more employed people!), he explained, we have a responsibility to pay that one some attention too.
My usual rule of thumb is 80% weight on payrolls, 20% on household. 0.8*113 + 0.2*616 = 214k Suggests the labor market report wasn't so bad
— Justin Wolfers (@JustinWolfers) February 7, 2014
Wolfers sees the economy 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,” he said, “but you get into the details and it looks like actually that’s what the economy’s kept on doing.”
So, as with any month’s report, there’s no absolute takeaway. “Whatever you thought yesterday is pretty much what you should feel today,” Wolfers said. Job creation looks sluggish, but as Wolfers reminds us, data is always noisy. The margin of error for the monthly payrolls alone, he said, is 90,000. And while the unemployment rate fell for the right reasons last month, Wolfers said, don’t “confuse changes with levels.”
Unemployment may have fallen, but it’s still a tough economy for many, of course, especially the long-term unemployed. That’s why, Wolfers argued, there’s such a strong economic argument for extending unemployment insurance benefits for people out of work.
The latest effort to renew unemployment insurance failed in the Senate Thursday. Conservatives who oppose extending the benefits often argue that unemployment insurance allows people to search for work for too long, disincentivizing ever returning to work.
“Sometimes it changes the incentive whether to accept the first bad job you get – I agree with that,” Wolfers said, “but in fact the evidence shows it keeps people in the labor force because they’re being paid to keep looking.”
And there’s a fiscal incentive, he argued, to keeping them engaged. “The real problem for us as taxpayers,” Wolfers continued, “is if these folks never find their way back into the workforce; they may find their way onto the disability roles or they simply may never work again. They’re not contributing taxpayers.”
Watch Paul Solman’s interview with Wolfers: