Jobs Report Proves the Economy Is on the Upswing
Daniel Gross digs into the latest jobs report—and discovers why things are actually looking good.
It's important not to read too much into any single data point. The October jobs report, released Friday morning, is a positive data point. The economy added 171,000 positions, and the unemployment rate ticked up to 7.9 percent. But it also highlights some important positive trends in the long-suffering U.S. labor market.
Here are a few important takeaways.
After a lull, jobs growth seems to be accelerating. If anything, the report of last month that got former General Electric CEO Jack Welch so exercised was significantly underplayed the strength in the jobs market. Payroll jobs are becoming more plentiful in the U.S. And that's hard to ignore. The U.S. economy added 171,000 payroll jobs in October, according to the Bureau of Labor Statistics. So far in 2012, the economy has added an average of 157,000 payroll positions per month; for the last four months, the economy has added over 170,000 payroll jobs per month. In other words, strength seems to be accelerating.
And this report also makes the August and September reports look better in hindsight. Every month, BLS goes back and revises the numbers that were reported in the previous two months. With the economy on the upswing, those figures often get revised upward. That's what happened this month. The August number, first reported in early September as a gain of 96,000 jobs last month was revised to a gain of 142,000 positions. This month, the August figure was revised again to a gain of 192,000. Translation: twice as many jobs were created in August than originally thought. The September figure, originally reported as a gain of 114,000 jobs, was revised to a gain of 148,000. So aside from adding 171,000 new positions in October, BLS discovered an additional 74,000 positions. Compared with a year ago, there are 1.95 million more Americans with payroll jobs; since February 2010, the economy has added 4.5 million payroll jobs. Is it any wonder consumer confidence, retail sales, and auto sales are on the upswing?
The unemployment rate ticked up in October from 7.8 percent to 7.9 percent. How can that be? When it reports the monthly data, BLS does two surveys. First, it calls companies and asks how many people are on the payroll—this establishment survey yields the payroll jobs number. Then it calls people at home and asks them about their employment situation. This household survey yields the unemployment rate. The unemployment rate is a function of how many people say they are in the workforce and how many say they are working. In October, the workforce grew by 578,000, which is a good sign. It means more people are looking for work and eager to enter the jobs market. But the number of people who said they were employed rose by a smaller number—about 410,000. And so the unemployment rate rose.
There was some other good news buried in the household survey. The employment-to-population ratio ticked up from 58.7 percent in September to 58.8 percent in October, and is up from 58.3 percent in October 2011. More people in the U.S. want to work than did a year ago, and more people are finding work than did a year ago.
The gains were seen in a variety of sectors. Manufacturing added 13,000 jobs. But the service sector, which accounts for well over 80 percent of employment, was the main driver of growth. Services added 163,000 positions, which strength in retail (37,000), business and professional services (51,000) and education and health (25,000).
There was one sector of services in which employment shrunk: government. Once again, what I've dubbed the "conservative recovery" continued. For the last few years, in virtually every month, the private sector has added jobs while the public sector—federal, state and local government—has cut positions. In October, the public sector cut 13,000 jobs while the private sector added 184,000. Since May 2010, the public sector has cut 986,000 jobs.
Of course, it wasn't all good news. As has been the case throughout this expansion, wages have lagged growth. In October, average hourly earnings actually fell by a penny. Since October 201, average hourly earnings are up a meager 1.6 percent. Employers are able to find qualified workers without paying much more in part because there is so much slack in the labor force. The unemployment rate may be below 8 percent. But broader measures of labor-market frustration remain at very high levels. The so-called U-6, which takes into account people who have quit looking for jobs, people who are working part-time but would prefer to be working full-time, and discouraged workers, stood at 14.6 percent in October. That's down from 16 percent in October 2011, but it is still much too high.