Friday, October 05, 2012

September Jobs Report

I am not an expert, but a significant drop in the reported top-line unemployment rate (from 8.1% to  7.8% - great timing for the President) in a month with only 114,000 jobs added does not smell right. (Of course, one way that the unemployment rate drops is if people give up looking for work, and leave the work force that way - unemployment rate only measures people who want a job AND are actively looking.  The people that want a job but are NOT actively looking don't count.  But you can expect to hear that 7.8% figure extolled repeatedly, saturating the mainstream press as evidence that everything's on the right track.) 

And I'm not the only one who thinks so. So I've gathered some commentary from people that know the numbers better than I do.

The Heritage Foundation
Job growth continues to sputter—this morning’s jobs report shows that 12.1 million Americans are still out of work.

Going against other economic indicators, the unemployment rate dropped to 7.8 percent. Economists are already looking into the drop, saying it seems to be a statistical fluke, because it doesn’t match up with the sluggish job creation and recent downward revision of GDP growth.

James Pethokoukis:
Only in an era of depressingly diminished expectations could the September jobs report be called a good one. It really isn’t. Not at all.

1. Yes, the U-3 unemployment rate fell to 7.8%, the first time it has been below 8% since January 2009. But that’s only due to a flood of 582,000 part-time jobs. As the Labor Department noted:

The number of persons employed part time for economic reasons (sometimes referred to as involuntary part-time workers) rose from 8.0 million in August to 8.6 million in September. These individuals were working part time because their hours had been cut back or because they were unable to find a full-time job.
4. The shrunken workforce remains shrunken. If the labor force participation rate was the same as when President Obama took office, the unemployment rate would be 10.7%.

Kevin Hassett (American Enterprise Institute)
Today’s jobs report is a classic. The report, of course, reveals the results of two surveys, one of households, one of establishments. 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. I wish it were true, but it will likely be a blip when we have a few more months of data.

[W]hat was the reason for this epic jump in Household survey jobs? Simple, and those who have read our series on America's transition to a part-time worker society know the answer. The reason is that the number of part-time people employed for economic reasons soared by 582,000 to 8,613,000, the most since October 2011, and the largest one month jump since February 2009, when "restoring" confidence in the economy was all the rage... and just before the Fed announced the full blown QE1 in March of 2009. Odd symmetry.

Suitably Flip:
[T]his doesn't smell right. The household survey (the part used to calculate the unemployment rate, not official payroll growth, which comes from the establishment survey) shows a whopping 873,000 jobs added in September (seasonally adjusted).

How whopping? It's the best month of the millennium to date.

In fact, it's the best month since 1983 (excluding Januarys, which usually show crazy numbers, due to annual revisions, which is why they're removed from the chart).

That's just not remotely plausible. In the last 29 years, we've had 22 quarters of growth exceeding 5%. And never did the household job creation rate hit the ostensible peak we just experienced, with growth hovering in the 1-2% range.

We've either got a massively massaged seasonal adjustment in place, a drastic change in household survey methodology, or the number is real, the economy is booming, and ADP undercounted by 700,000.

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