Commentary by James H. Shott
After three years of a lackluster economy, unacceptably high unemployment, serious policy gaffes and generally poor performance, President Barack Obama really needed some positive development. But he didn’t get anything positive at the first presidential debate with challenger Mitt Romney, which was, to be kind, uninspiring.
And then – magically, two days after the debate – the September jobs report came out and in one fell swoop wiped away that negative. From the jobs report we learned that the U-3 unemployment rate fell from 8.1 to 7.8 percent, a surprisingly large drop, given what we’ve seen over the last three years, big enough to get below the magic 8.0 threshold that dogs incumbent presidents.
But then the big surprise: There were 873,000 more people working in September than in August.
Really? Nearly a million people found work in one month?
That number is wildly out of line with months of job number reports. According to the Bureau of Labor Statistics (BLS), “In 2012, employment growth has averaged 146,000 per month, compared with an average monthly gain of 153,000 in 2011.” And suddenly, just when Mr. Obama needed it most, 873,000 people find work. What’s going on?
The BLS has two monthly surveys that measure employment levels and trends: the Current Population Survey – the household survey – and the Current Employment Statistics survey – the payroll or establishment survey – which the BLS describes thusly: “The household survey and establishment survey both produce sample-based estimates of employment and both have strengths and limitations.” The establishment survey has a larger sample size and smaller margin of error than the household survey. “However, the household survey has a more expansive scope than the establishment survey.”
Economists say that over a period of months the two different surveys will show similar results, however, the household survey is erratic, with wild monthly swings up and down, and it is not unusual for responses to the survey to be made by proxies, who may answer for the targeted respondent. Any single month’s results cannot be depended upon for an accurate picture of employment changes from the previous month, whereas the establishment rate moves more steadily up or down.
Illustrating that point is that the establishment/payroll survey showed total nonfarm payroll employment rose by only 114,000 in September, which is substantially lower than the monthly average of 146,000 for 2012, but more in line with average job growth than is the household figure.
“We believe part of the drop in the unemployment rate over the last two months is a statistical quirk (the household data show an increase in employment of 873,000 in September, which is completely implausible and likely a result of sampling volatility),” say economists John Ryding and Conrad DeQuadros of RDQ Economics. “Moreover, declining labor force participation over the last year (resulting in 1.1 million people disappearing from the labor force) accounts for much of the rest of the decline,” they conclude.
Just how implausible is that 873,000 new jobs number that appeared in only a month? It is the highest one-month jump in 29 years.
Further, the BLS explains that jobs reflected in the household survey are different types of jobs than are tracked in the payroll survey. They include those in start-up businesses, the self-employed, unpaid family workers, agricultural workers, private household workers, and some are people who can’t find a regular job and have started working from home, perhaps selling items on E-Bay; jobs that are excluded by the establishment survey.
While the U-3 rate fell to 7.8 percent, it is still too high. The sky-high number reported in the household rate may reflect a turn in the oh-so-slow rate of job creation. But it may not. We’ll have to wait and see what happens next month.
Following this “October Surprise,” to maintain a healthy perspective, other statistics must be kept in mind: The economy is grinding forward, with GDP a mere 1.3 percent last quarter. Most knowledgeable observers say we need 200,000 to 250,000 new jobs each month to drive unemployment down at a suitable speed, not the 146,000 we’ve been averaging. And while the Labor Force Participation Rate ticked up to 63.6 percent from 63.5 percent, it is still near the 30-year low.
More relevant, the U-6 unemployment rate counts those who are underemployed and those who have given up looking for a job, and now sits at the seasonally adjusted rate of 14.7 percent.
The number of persons employed part time for economic reasons rose from 8.0 million in August to 8.6 million in September, because many workers saw their hours cut back or because they were unable to find a full-time job.
“The household survey painted a picture of a sharply falling unemployment rate—down 1.2 points over the last 12 months,” say Ryding and DeQuadros. “Such a rapid decline in the unemployment rate would be consistent with 4 percent to 5 percent real economic growth historically. Of course, the economy is not growing 4-to-5 percent, not even half that.”
Despite this surprising bit of good news, the economy is still under-performing, and nothing has changed to warrant four more years of Obamanomics. It’s way too little, and far too late.
Cross-posted from Observations