Admittedly this was a tough report to read – 157,000 jobs isn’t bad – but reporters should be doing their homework. There is good reason to believe that the establishment survey (the one showing 157,000 new jobs) is now overstating employment because its imputuation for job growth in new firms not captured in the survey … Finally, the household survey is certainly showing real signs of weakness. The employment to population ratio has fallen from 63.3 percent in March to just 63.0 percent in the April and May data. This corresponds to 600,000 fewer people having jobs. That doesn’t happen in a strong labor market.
All true but during May 2007, the increase in household employment was also 157,000 which is the same figure in the payroll survey. BLS also reports that the unemployment rate did not change, which isn’t a surprise given that the employment to population ratio stayed at 63% and the labor force participation rate stayed at 66%. So while there was a fall in the employment prospects as reported in the household survey from March to April – last month was sort of neutral.
Update: David Altig also noticed the recent drop in the labor force participation rate:
It is certainly true that the participation rate has been heading down over the course of the year. In the longer view, however, the change looks pretty unexceptional. If you break things down by age, you see some pretty standard looking variation in the participation of prime-age workers … and yet another pronounced slide in the participation rate of 16-19 year olds … That drop in the participation rate of teenagers accounts for about one-third of the decline in the overall participation rate. What’s more, the participation rates of individuals over 55 have been essentially flat, a marked change from the last decade over which those rates steadily rose. Combined with the declining rate of the youngest group of workers, the tailing off of participation among AARP-aged workers is enough to explain the entire decline in the aggregate participation rate since the beginning of this year.
David was reacting to this concern of Barry Ritzholtz:
Most of us think about the unemployment rate going down due to more people getting jobs. But there’s also another way the official unemployment rate can go down. It happens when the denominator – the bottom number of the fraction – goes down. And that is what has been occurring again recently. The Labor Pool has shrunk, making the unemployment rate look better than it actually is.
That sounds like what Dean said – and it also reminds me of stuff I’ve written before. David goes into the details as he often does and comes out a bit less concerned about the alleged weakness of the labor market.