The excitement about three-tenths of one percent drop in the unemployment rate expressed this morning in several media outlets tells you a lot about how low our exceptions about the economy have become. Have we gotten so used to an 8 percent unemployment rate and are we so pessimistic about the outlook of our economy that a rate slightly below that number is interpreted as great news?
Even leaving aside the discrepancy between the federal government’s two main jobs surveys, this is a very small drop. Here is some perspective from Ezra Klein:
The fact is that there’s not much that needs to be explained here. We’ve seen drops like this — and even drops bigger than this — before. Between July and August the unemployment rate dropped from 8.3 percent to 8.1 percent — two-tenths of one percent. November-December of 2011 also saw a .2 percent drop. November-December of 2010 saw a .4 percent drop. This isn’t some incredible aberration. The fact that the unemployment rate broke under the psychologically important 8 percent line is making this number feel bigger to people than it really is.
I agree with Klein that there is nothing to be very excited about.
In addition, while I would like to believe that this morning’s jobs report is a product of significant improvement in the job market, I can’t help being skeptical. Granted the economy added 114,000 jobs last month. It is not great but it is good news. Knowing that more people have jobs today than they did last month is a cause for celebration, even if we wish the number were higher.
It is, however, hard to reconcile this 114,000 number with other indicators. Based on past projections, an addition of 114,000 jobs to the economy should result in an unemployment rate closer to 8.1 percent than to 7.8 percent.
As Kevin Hassett explained, there is a disconnect between how few jobs were added to the economy and the drop in unemployment:
The professional economists and the press usually emphasize the establishment survey because it is viewed as less volatile. The establishment survey was terrible. The 114,000 number of jobs created on net in September is well below the average for this year (146,000) and the average for last year (153,000). This is wholly consistent with the story that the economy is decelerating sharply as we head into the fall.
The household survey, on the other hand, portrays a September that was booming, far more so than could possibly be true given the other indicators. According to it, the unemployment rate dropped to 7.8 percent, with total employment jumping by a whopping 873,000.
Next month’s unemployment rate will be interesting to watch. Based on everything I have read this morning, I am thinking that the unemployment rate may jump back up in the next report when you get a better sample from the survey.
Here are a few things to note:
To the extent that there is improvement, it seems to be in government employment because of teachers going back to school. My colleague Keith Hall noted that “although job growth over the prior two months was revised up by 126,000, job growth in the private sector was revised down by 4,000 as all of the upward revision was in government.” He adds in an e-mail to me: ”Let me also point out that the employment series underlying the UR is very volatile. It showed a gain of 872,000 jobs, but it also showed a loss of 314,000 jobs in July and August combined.”
To the extent that there is improvement, it is also because people who were looking for full-time employment settled for part-time jobs to survive until the economy recovers. We will notice an increase of 582,000 in the number of workers employed in part-time jobs.
BLS data shows that there are still 61,000 fewer people employed today than in January 2009 (the data is from BLS, Table B-1 seasonally adjusted “Employees on nonfarm payrolls,” accessed October 5, 2012). This is disconcerting to say the least and tells you how slow this recovery has been.
If you are interested in the job situation in the states, check out this piece by Keith Hall.
For a really good take on the trends in labor-force participation, check out this piece by James Sherk.