Weak Jobs Gain

There is not much to say about today’s unemployment and jobs reports. In way the data contains slightly contradictory stories. This is because there are two sources for the information we lump together in the report: the survey of business and the survey of households. The two sometimes diverge in their narrative. Perhaps now is one of those moments.

First the business survey.

This is the one that gets the headlines because it tells us how many jobs have been added. We learned today that the economy added 80,000 new jobs in October. That’s not very good, since it lags the inflow of people into the potential workforce and so should, I emphasize should, therefore cause the unemployment rate to rise. Before we get to that, let me report that the slightly better news embedded in the data is that we added more jobs in both August and September than originally thought – to the tune of 102,000 more.

This is nothing to get too excited over, and stays well within the bounds of an outlook of mediocre growth in the range of 2.0% to 2.5%. These kinds of monthly additions simply tell us we are not contracting nor are we growing at a sufficient rate to chip away at unemployment. The malaise continues.

But.

The household survey tells us a different story.

Contrary to what I just suggested, the unemployment rate, which is calculated from the household survey not the business survey, fell from 9.1% to 9.0%. This apparently perverse result is a direct result of using different sources in the calculation. The number of people reporting that they are employed has risen much more steeply in the household survey – for instance it rose by 277,000 in October, which is radically different from the 80,000 of the business survey. Not only this but the number of discouraged workers, part time workers, and other measures of weakness in outlook for jobs, all fell significantly. This is a trend that developed over the summer, and so we now have a strong divergence in the message being sent by the two surveys.

What do we make of this?

I think it is too early to tell. The business survey is much more inclusive and has been much more reliable through time. So the sluggish story has more credibility, and should affect our thinking more decisively. But the more upbeat message coming through the household survey is hard to ignore, especially now that it has been consistent for a few months.

Eventually the two surveys should converge again. This current divergence is not unusual at inflection points in the economy’s trajectory, so it may be that we have arrived a critical moment. If so we ought to detect a shift in spending and confidence over the next few months. That we have not seen such a shift suggests to me that the household survey is simply filled with noise that masks a more downbeat story. After all the sample size, while very large for such a survey, is still narrow enough that the results need to be handled with care.

Over all, as you can imagine, I err towards reliance on the business survey as the better guide as we try to predict the employment outlook. Job generation is still a sputter rather than a roar. But we would be wise to keep an eye on the household data, lest we miss a key moment in our change of fortune.

My forecast stays the same: sideways motion is the most likely outlook. Let’s hope I am wrong.