If you want to understand why the stock markets are doing well, why car and home sales continue to grow, why the U.S. economy continues to perform better than most people think, and why President Obama won the 2012 election, you’ve got to wade deep into the woods of the January jobs report, which was released Friday morning.
The headline number continued the recent trend of generally decent but unimpressive growth. The Bureau of Labor Statistics reported the economy added 157,000 payroll jobs in January, according to the establishment survey, which guesstimates the number of total positions based on a sampling of companies and organizations. That’s about par for the course over the past couple of years, and not nearly enough to take up all the slack in the labor market. The unemployment rate, which is calculated from a separate survey of households, bumped up to 7.9 percent.
To a large degree, the report saw the continuation of recent trends. The labor force participation rate and the employment-to-population ratio remained stuck at historically low levels—in part because the workforce is aging, and in part because there aren’t a lot of jobs to suck people into the workforce. Construction added 28,000 jobs, because, as regular visitors to this space should know by now, housing is back! The retail, leisure and hospitality, and business and professional services sectors each added about 25,000 jobs. The government sector, as has been the case for virtually every month over the past three years, shed 9,000 jobs. Since May 2010 the public sector has shed 1.127 million jobs. (Some people call it socialism!)
But the good news was buried in the report. While the media and political types often hyperventilate about the reports, these monthly bulletins are really best thought of as first drafts. The data, which are really estimated based on relatively small samples, are revised about as frequently as an ambitious high school senior’s college essays. BLS is engaged in a near-constant process of retrospection. The jobs figures are revised in each of the two months after they are initially reported. And then, each year, BLS goes back and revises all the data for the prior 12 months. Why? Rather than simply estimate employment based on samples, BLS looks back at unemployment-insurance tax records to determine how many people were actually on the nation’s payrolls. It also adjusts the data to account for its estimates of how many new companies were formed (births) and how many existing companies went out of business (deaths). (Matt Phillips has a good breakdown of these revisions over at Quartz.
Through this imperfect process, BLS believes it is providing a more accurate rear-window view of the economy. In the report released today, BLS published its revisions for 2012. And it turns out a lot more people were working throughout the year than previously thought. So, for example, in January 2012, BLS now says there were 132.809 million payroll jobs; that’s 348,000 higher than the previously published numbers. So the year started off from a higher base than we thought. And as 2012 rolled on, in 10 of the 12 months, BLS says the economy produced significantly more jobs than it had previously found: 2.17 million new positions added, instead of 1.875 million, for an increase of about 335,000. Add in the higher benchmark (the January figure) and the higher job creation numbers, and BLS’s final answer for 2013 is that there were 681,000 more people at work in December 2012 than we thought were working just one month ago.
Now, that’s still not enough to claw back all the positions lost during the Great Recession of 2008–09. The payroll jobs figures are the highest they’ve been since November 2008 but are still 3.226 million below the peak of January 2008. Put another way, the economy has regained all the jobs it lost during the first two years of the Obama administration and is now starting to regain the jobs lost in the last year of the Bush administration.
But the higher jobs figures help explain a lot. They help explain why consumer spending and retail sales held up quite well during 2012, in spite of the seemingly weak jobs numbers. They help explain why consumers on the whole did a far better job keeping up with financial obligations—from mortgages to credit cards. They help explain why more people were willing to take a plunge on purchasing home or buying a new car.
They also help explain one of the enduring political mysteries of the just-completed campaign. If the economy was so bad, if the job market was so poor, how come President Obama had such a comparatively easy time getting reelected?
Books will be written about tactical and strategic errors, and about the flaws and strengths of the candidates. (They already have been.) But when the underlying economy is performing well, and trends are going in the right direction, incumbents tend to win. I believed from the outset that President Obama would win reelection because of the economy, not in spite of it—that America’s recovery and reinvention, while far from satisfying, was sufficiently advanced and meaningful to help the president. Some of that argument was based on a hunch, and on the fact that I had just written a book making precisely that case. But it turns out the data are supportive of this case. According to BLS, the economy created 2.2 million jobs in 2012, which is pretty good. Employment is generally the most significant economic indicator for politicians. And it turns out the more we learn about the labor market in 2012, the better it gets.