Unemployment Surprise or Conspiracy?
Columbia Management
By Marie Schofield
October 11, 2012
The blogosphere is overflowing with conspiracy theories about the household survey unemployment data in this pre-election period. I do not give any credence to these stories and believe the data is the data. But it needs to be interpreted carefully as it can be complex and volatile.
The Labor Department’s Establishment Survey of businesses showed that Nonfarm Payrolls increased by 114,000 in September with private payrolls up 104,000, both a little less than expectations. There were substantial upward revisions to August and July totaling an additional 86,000 payrolls, primarily from the government sector (state and local government teacher employment has surged in recent months). The revisions lifted the Q3 monthly average to 145,000 from 67,000 in Q2 and 226,000 in Q1 (to the mid-point of those prior quarters). The service sector has been an anchor with nearly half of the private sector gain coming from the Health Services, well above recent averages for this sector. Weakness in manufacturing was once again confirmed with the second consecutive decline, in confirmation of the downbeat industrial production and purchasing manager data seen recently. Despite positive housing data, construction has seen lackluster hiring, although it is no longer receding. Temp help slipped too. Overall, payroll gains remain within recent trends of 100,000 – 150,000 and have failed to move substantially higher.
The Household Survey was strong and showed that the September unemployment rate ticked down to 7.8% from 8.1%, better than expectations. The labor force grew about 400,000 and despite this employment gains surged over 800,000 — meaning unemployment level fell by the difference which caused the large swing in the unemployment rate. However, part-time work accounted for 582,000 of the gain. The outsized jump is not unprecedented but data here tends to be “lumpy” with frequent reversals in following months. This month the government sector accounted for a large share (again seasonal teacher hiring). This is unrepeatable in future months with fiscal budgets still under pressure — so the gains here need to be discounted some.
The Labor Underutilization Rate (U-6) that includes the Unemployed, Discouraged and Part-Timers was unchanged at 14.7%. The participation rate edged up to 63.6% but it is still near a 28 year low. Average hourly earnings for all employees increased 0.3%, up 1.8% in the last year (barely keeping up with inflation). Workweek rose as well. The proxy measure for income (Aggregate Weekly Payrolls) rose 0.6% indicating a decent gain in wage salary growth.
Bottom line for this survey: More people are working and working longer hours with some increase in pay. That is the good news. But the strength here is somewhat at odds with the business survey above and also with unemployment claims and other labor market measures. Data requires confirmation — it is premature to assume the shift here is sustainable.
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