Friday, February 3, 2012

January Employment: Getting Better, Mostly

The BLS' employment report for January was a relatively good one: the economy added 243,000 jobs in January, and the unemployment rate fell to 8.3%.
The headline jobs number comes from a survey of businesses (the "establishment survey") and the employment rate is calculated from a survey of households.  Both series had some revisions.  The establishment survey was updated based on information from unemployment insurance records, and these revisions resulted in higher estimates of employment for 2011 - the new estimate for the jobs number for Dec. 2011 was 266,000 above the old one (and the addition for January is on top of that).  The household survey data was updated based on census data, which led to an upward revision of the estimates of the size of the population and labor force.  The BLS explains:
The adjustment increased the estimated size of the civilian noninstitutional population in December by 1,510,000, the civilian labor force by 258,000, employment by 216,000, unemployment by 42,000, and persons not in the labor force by 1,252,000. Although the total unemployment rate was unaffected, the labor force participation rate and the employment-population ratio were each reduced by 0.3 percentage point. This was because the population increase was primarily among persons 55 and older and, to a lesser degree, persons 16 to 24 years of age. Both these age groups have lower levels of labor force participation than the general population.
Although the reasons for it have more to do with demographics than with discouraged workers, it is still disturbing to see that the revision pushed the labor force participation rate down to 63.7%, its lowest since 1983.

Labor Force Participation Rate (Seasonally Adj.)

The revisions also mean that, despite strong employment gains in the month, the employment-population ratio remains at a depressed level of 58.5.

Employment-Population Ratio (Seasonally Adj.)
(Without the population data changes, the employment-population ratio rose by 0.3 and labor force participation was flat in January.)

Although the establishment survey jobs number gets more attention because it has a larger sample than the household survey, the household survey was stronger: the number of people reporting that they were employed increased by 847,000.  After removing the effect of the revision to the population data, the increase was 631,000.

January is a month with a big seasonal adjustment, which attempts to remove the effect of the decline in employment that normally occurs during this time of year (e.g., many holiday retail jobs end).  On a non-seasonally adjusted basis, the unemployment rate in January was 8.8%, and payroll employment fell by almost 2.7 million.  Floyd Norris has a skeptical note on the seasonal adjustment.

Overall, this report was good, but not nearly good enough.  While it is nice to see employment growth at a pace strong enough to actually improve things a bit (i.e., faster than the 125,000-ish jobs per month needed just to keep the unemployment rate constant as the population grows), the employment-population ratio illustrates that the economy is far from healthy.  12.7 million people remain unemployed, of whom 5.5 million have been unemployed more than 27 weeks, and "U-6", the BLS' broader measure of unemployment which incorporates discouraged workers and part time workers who want to work full time, is at 15.1%.

See also: Ezra Klein, Free Exchange's Greg Ip, Calculated Risk.

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