Reasons why yesterday’s employment report was not as bad as it seemed

Yesterday’s employment report for January from the Bureau of Labor Statistics suggested a steadily healing labor market, but you wouldn’t know that from some of the hand-wringing of media commentators who have the job of trying to make something dramatic out of something that isn’t.

I’ll just take a quick look at some of the data from the two surveys that form the foundation of the report.

First, we’ll look at the establishment survey, which is literally a survey of payroll establishments. This is the survey used for the headline jobs number that most economists see as a valuable measure of current employment conditions.

From the BLS:

Total nonfarm payroll employment increased by 113,000 in January. In 2013, employment growth averaged 194,000 per month. In January, job gains occurred in construction, manufacturing, wholesale trade, and mining.

Here’s what that looks like on the BLS graph:

Screen shot 2014-02-08 at 10.09.00 AM

So 113,000 is obviously far below the average monthly gains from 2013, but January is always a volatile month subject to large seasonal adjustments. It seems unlikely that weather played a negative role in January hiring, but it might have. Also, consider that the private sector added 142,000 jobs, according to the report. If the public sector were also adding jobs, as it has through good times and bad for decades until just the last few years, we would have been looking at gains of 160,000+.

And that’s one of the curious things about this jobs recovery. The private sector has been steadily adding jobs for about four years, but the public sector — federal, state, and local governments — has seen stagnating employment and fairly widespread job losses. This is not “normal” in any sense. Typically, a country increasing in population would be adding teachers, law enforcement personnel, government inspectors, support staff like mechanics, etc., etc.

Check out this graph from a typically clear post by Calculated Risk:


So there’s private sector employment under every president going back to 1980. Since Obama took office, the private sector has added more private sector jobs than during the 12 years under the Presidents Bush. It’s interesting to note that the default growth under Reagan, Clinton, and Obama is fairly similar — those lines have very similar slopes once job losses were stemmed under Reagan and Obama. Of course, that’s also a bit worrisome. The figures here are for total jobs added, not for the percentage rate of employment growth. Since the population has increased, the Clinton slope should event be a little steeper, and the Obama slope should be steeper still.

If you click on through to Calculated Risk’s post, you can see the unprecedented decline in public sector employment over the last few years.

Now, let’s move on to the household survey, which is used to determine the unemployment rate and other labor market statistics.

From the BLS:

Both the number of unemployed persons, at 10.2 million, and the unemployment rate, at 6.6 percent, changed little in January. Since October, the jobless rate has decreased by 0.6 percentage point. (See the note and tables B and C for information about the effect of annual population adjustments to the household survey estimates.)

Among the major worker groups, the unemployment rates for adult men (6.2 percent), adult women (5.9 percent), teenagers (20.7 percent), whites (5.7 percent), blacks (12.1 percent), and Hispanics (8.4 percent) showed little change in January. The jobless rate for Asians was 4.8 percent (not seasonally adjusted), down by 1.7 percentage points over the year.

The number of long-term unemployed (those jobless for 27 weeks or more), at 3.6 million, declined by 232,000 in January. These individuals accounted for 35.8 percent of the unemployed. The number of long-term unemployed has declined by 1.1 million over the year.

After accounting for the annual adjustment to the population controls, the civilian labor force rose by 499,000 in January, and the labor force participation rate edged up to 63.0 percent. Total employment, as measured by the household survey, increased by 616,000 over the month, and the employment-population ratio increased by 0.2 percentage point to 58.8 percent.

The number of persons employed part time for economic reasons (sometimes referred to as involuntary part-time workers) fell by 514,000 to 7.3 million in January. These individuals
were working part time because their hours had been cut back or because they were unable to find full-time work.

Now, the household survey is typically pretty volatile, and we have seen a small decline in the participation rate over the last year, but that is in part due to an aging population. And the numbers suggest that the participation rate actually increased from December to January. The establishment survey showed a monthly gain of just 113,000 jobs, but the household survey showed that over 600,000 additional Americans described themselves as “employed”. All data here are seasonally adjusted, by the way. Over time, the discrepancies in the household and establishment surveys will work themselves out, and I’d be surprised at this point if we didn’t see either large revisions to the establishment survey estimates or faster job growth over the next few months.

One other note: yesterday I heard various commentators, like David Brooks on All Things Considered, make the case that the labor force participation rate is at historic lows. That’s obviously not true — not at all. The labor force participation rate is far higher today than during most of the 20th century.

Here’s what yesterday’s household survey estimates meant for the unemployment rate:

Screen shot 2014-02-08 at 10.08.52 AM