The household survey paints a clearer picture of the January employment report than does the nonfarm payroll
I’ll forward you to Spencer’s post on the January Employment report. As always, he sifts through this massive report and eloquently describes the state of the labor market. But I thought that I’d add a bit on the disparity between the household survey and the establishment survey.
The annual population revisions and weather distortions have confused some. The issue at hand is, that the BLS’ two surveys, CPS (Current Population Survey, from which the unemployment rate is derived and called the household survey) and CES (Current Employment Statistics, from which the nonfarm payroll is estimated and called the establishment survey), offer conflicting views on the strength of the headline report (i.e., just the statistics about the unemployment rate and the nonfarm payroll): the unemployment rate dropped 0.4% to 9.0%, while the nonfarm payroll increased a meager 36,000 when 146,00 was expected (by Bloomberg consensus).
The report is not conflicting, in my view – it’s just weather related stuff that impacts the CES, and to a much lesser extent the CPS. The drop in the unemployment rate, although usually the statistically less popular data point, is probably the best descriptor of the monthly shift in the labor market: strong. (A 9% unemployment rate cannot be described as strong by any measure out there; I digress.)
All of this information is stated in the BLS release, which you can find here. Below I describe (1) the revisions to the CPS and (2) the weather-related distortions that discount the establishment number.
Why the drop in the unemployment rate is credible. The summary statistics show the labor force falling by 504,000. The annual revisions dropped the labor force by 504,000, so the unrevised numbers show the labor force unchanged over the month.
The summary statistics show the number of employed increasing by 117,000 The annual revisions dropped the employed by 472,000, so the unrevised number of employed increased by 589k in the release. This is a big gain.
In fact, the revisions do not materially alter the 2010 unemployment rate nor its trend in any way. By my calculations – please correct me if I’m wrong – the unemployment rate would have been 9% with or without the CPS survey revisions.
For many reasons, the change in those ’employed’ in the household survey (+589k) does not match up to the change in the nonfarm payroll in the establishment survey (+36k); but the direction of the changes across both surveys are often similar. However, +589k is sizeable by any historical standard.
So why +36k in the establishment survey versus the +589k in the household survey? Weather. Nomura economists David Resler, Zach Pandl, and Aichi Amemiya did some research on weather-related months(no link available since this is proprietary paid research and bolded by me):
In one of the largest first reported declines on record, the BLS in its February 7, 1996 report calculated that non-farm payrolls FELL by 201,000 from the previous month. The outsized decline hit both manufacturing (-72,000) and services (141,000) but the construction industry registered a net job gain of 13,000. At the time, the BLS blamed the big winter storm for skewing the job loss and a month later reported that payrolls surged by 705,000 in February after a revised drop of 188,000 in January. Since then, subsequent benchmark and seasonal factor revisions have resulted in a history showing a drop of 19,000 in January 1996 followed by a 434,000 increase in February.
and…
These observations suggest January’s severe winter storm could skew the measurement and estimation of payrolls this year as well. From those prior episodes, we calculate that the winter storms led to a .0007 to .0015 deviation from “normal” seasonal job change in those months. A similar deviation of employment from normal seasonal patterns implies that the change in non-farm payrolls would be likely to fall in a range of -50,000 to +56,000.
Ex post, they were right – they published this research before the January employment report was released – not only about the expected weather distortions, but also regarding the level (-50k to +56k). Accordingly, it’s very likely that next month we’ll see outsized gains, given the history of this type of distortion.
Therefore, until I see a weak February number (one month from now), I’m going to assume that the headline figures were strong and consistent with the unemployment rate dropping 0.4% to 9.0%.
Of course, there’s a slew of workers that are not in the labor force that may re-enter, which would undoubtedly drive the unemployment rate up (it probably will). And let’s remember this when talking about a “strong” employment report: 9% doesn’t represent the severity of the unemployment problem – the employment to population ratio does.
Rebecca Wilder
Question regarding: The summary statistics show the number of employed increasing by 117,000 The annual revisions dropped the employed by 472,000, so the unrevised number of employed increased by 589k in the release. This is a big gain.
Why should we use the unrevised number as being the more valid count of increased number of people working?
Did David Resler, Zach Pandl, and Aichi Amemiya suggest why weather creates a difference in the count of those who say they are working vs those who say how many more people they employed?
Everyone keeps saying the economy is getting better and better by the day. It’s been 5 months now and I still don’t have a job and when I do get one I will be taking cash advance payday loan to pay for those student loans
Hi Rebecca:
Civilian Non-Institutional Population dropped, the Civilian Labor Force decreased, Employed Increased, and Not In Labor Force increased as reflected in Participation Rate decreasing. Why the confusion?
If NILF keeps going up, it does not matter what U3 does which is a joke. Parity for U3 is reached when Participation Rate equals the Participation Rate of 2001. The numeric is to nervous and today’s measurement of U3 has no meaning
http://www.gallup.com/poll/125639/Gallup-Daily-Workforce.aspx
FYI
you can get any unemployment rate you want if you shrink the demoninator enough…what you call strong is a drop in the bucket….since the recession “ended” in july of 2009, we’re now well into our second year of recovery; over the past year we’ve only added back 1.1 million of the 8.4 million jobs that were lost during the recession; however, just to create jobs to make up for the increase in the population, we should be adding 1.5 million jobs a year; thus at the rate jobs are being added in this “recovery”, the labor force participation rate will continue to shrink, and we’ll never get out of this hole…
this from last month is illustrative, it hasnt changed much…
Only 47% of working age Americans have full time jobs – VK, roving reporter for The Automatic Earth, has been playing with the numbers from the January 7 employment report issued by the U.S. Bureau of Labor Statistics. It seems valuable to look at unemployment from this, a different, angle. Some of it may even surprise you. The total non institutional civilian labor force (Americans 16 years and older who are not in a institution -criminal, mental, or other types of facilities- or an active military duty) is reported as 238.889 million. Of these, we see:
–Employed: 139.206 million people (58.3% of labor force)
–Unemployed: 14.485 million people (6.1% of labor force)
Obviously, that can’t be the total picture, we’re only at 64.4%. This is why:
–Part time employed for economic reasons: 8.931 million people. This concerns people who want a full-time job but can’t get one.
–Part time employed for non-economic reasons: 18.184 million people. Non-economic reasons include school or training, retirement or Social Security limits on earnings, but also childcare problems and family or personal obligations.
But the by far largest category “missing” from both the Employed and Unemployed statistics is the “Not In Labor Force”: 85.2 Million people. The BLS definition states: “Not in the labor force (NILF). A person who did not work last week, was not temporarily absent from a job, did not actively look for work in the previous 4 weeks, or looked but was unavailable for work during the reference week; in other words, a person who was neither employed nor unemployed.” (Clearly, this does include lot of unemployed people).
The AP distributed an article (saw it in the Detroit paper) about the glorious recovery due to the great number of jobs being created.
Huh?
Rebecca:
Kind of going away from the doom and gloom of the BLS numerics and asking why, why we have not seen such a rebound we normally would experience. Why I am in Germany, there unempoyment rate is lower. Romania also reports lower, as does China. Keating (of SS fame here) pretty much admits he does not expect Participation Rate to rise in his statement on job creation to me at Naked Capitalism. This would be a solid reason for his being anti-SS. Without job creation we are well on our way to becoming a welfare state. Yet both Keating, Biggs, and Peterson do not see job creation as the issue today. Why is this?
The most profitable and quick to snap back sector of our economy is financial services and banking. By 2008 it had garnered 40% of all profits and accounted for roughly 1/3 of GDP. Today, GS takes advantage of being a bank and an investment firm under TARP guidance and makes $ borrowing from the gov cheaply and selling back to us and the gov. These moneies benefit a few and by the nature of trading on Wall Street, the gains do not necessarily benefit Main Street when it is sunk in CDS, etc. Peterson has his and I am gonna assume Keating and Biggs have their’s also by the nature of what they do. God-forbid they break a manicured nail or sustain chapped hands from laboring outside.
Why would someone invest in a labor intensive business if they can be sudsidized by the gov in banking and on Wall Street. Manufacturing sees an ~3% net profit as compared to percentages many times greater in financial services and banking. The spector of a Wall Street and Banking economy being premier in the US is not the environment which will employ the other 86 million people without the prerequisite and minimum BA. Furthermore, there is no far reaching program such as TARP which will bail manufacturing out giving it the fuel and preference it needs to be preeminent in the US once again. Even the bailouts of automotive were fought visciously by Congress and the very public it would have helped.
Measuring doom and gloom is the marker in how high the river of people unemployed against the banks of joblessness. We have surpassed the eighties and now can be compared to WWII high water marks. Maybe others who are better trained and more knowledgeable than I will disagree; but, I see no relief until some fundamentals change in the economy which will benefit more than just a few. We all can not be Wall Street brokers or bankers.
What Ben Bernanke is actually thinking:
The Federal Reserve, in conjunction with the European Central Bank and the major nations of the West, is engaged in the most extraordinary bailout in history. Through a series of measures, both overt and covert, we are subsidizing the financial system and backstopping the major securities and derivatives markets with what amounts to a blank check. These operations are continuing, even expanding, even as we claim that the bailout is being wound down, and that the bailout is turning a profit. Without these extraordinary, taxpayer-funded, efforts, there would be no financial system.
The Federal Reserve and other regulators are doing everything we can to help the banks dress up their books, to hide the extent of their losses. These efforts have been remarkably successful at allowing these totally bankrupt institutions to keep their doors open, and pretend to be profitable. In doing so, we have successfully avoided runs by depositors, investors, and counterparties which could have destroyed these banks virtually overnight, and taken the financial system with them.
The Federal Government has, for all intents and purposes, become the residential real estate mortgage market, issuing or guaranteeing some 95% of new mortgages, and providing Federal guarantees for huge amounts of mortgage-backed securities and other mortgage-related derivatives. The maintenance of the illusion that these securities have value is a matter of the highest national security, as it is preventing the total collapse of the banking system.
To get through this crisis, the Fed is systematically destroying the value of the dollar. This will allow is to pay back our future obligations with cheaper dollars, a time-tested technique. At the same time, we must continue to sell huge amounts of dollar-denominated Treasuries to fund our deficit and raise money for the bailout. Therefore, we must publicly insist that we are committed to a strong dollar–even though our actions show that insistence is a lie.
The fact is that we are piling up new debt at a staggering rate, while the capability to service that debt is collapsing. We understand that this is unsustainable, but we view it as a short-term measure needed to help us get through the transition to a new financial system. We have no illusions that the old system can be saved, even though we constantly talk about how sound it is, and how it is recovering. We are lying, to keep the peasants calm while we set up our new global dictatorship.
If we told you the truth about what was coming, you would panic. We do not have the resources to keep the vast majority of the world’s population alive, and save the financial system. We are therefore forced to choose between the monetary system and the people. The choice is hard, but obvious: we must protect the money, since it is money that makes the world go around. Without capital, we can not have finance, we can not have trade, there would be no credit for the economy. In the post-bubble world, under the new global system, the carrying capacity will be much smaller. That may be unpleasant, but we ignore Malthus at our peril. For now, we require austerity and depopulation, as we return to a sustainable balance.
At the same time, we will require a dramatic contraction in the size of the global financial system. The first to go will be the institutions most closely associated with the peasant–what some call the “real”–economy. That means the commercial banks which depend upon making loans to ordinary people and businesses, which will be the first to feel the effects of the economic contraction. When a bank’s customer base goes broke, the bank is never far behind. We’ve closed some 300 banks over the past […]
“Not in the labor force?” Probably most of the 153,000 baby boomers who became Social Security Retiree beneficiaries last month. Economic pundits and bloggers who ignor the demographic tidal wave crashing our economy are idiots.
OK, 900,000 jobs in two months is not trivial and it is movement in the right direction. But to put things in perspective, even taking into account the population correction factor, roughly 40% of the 0.8 points drop in the unemployment rate in the last two months was due to people leaving the labor force. So I’m not quite ready to break out the champagne just yet. Let’s see what next month’s numbers look like. But if the economy is finally turning the corner there’s only one credible reason: QE2.
Johnny:
“probably” is not certainty and babyboomers would have difficulty in sustaining a life with SS benefits. Many more babyboomers and those past 65 are working beyond their time because of the inability to retire or fully retire.
“We all can not be Wall Street brokers or bankers.”
Nor do they create enough demand in the toilet cleaning service industry either.
divorcedone:
Nor do I see the flow of productivity gains flowing to toilet bowl cleaners. I believe Rebecca would tell you the service industry has been taking the largest hit in unemployment to date. As I understand though, there are more toilets per Wall Street employee than in any other business. Perhaps a switch to toilets with half doors and sinks that are rounded pieces of concrete with foot pedals for water control.
here is a remark from epc at naked capitalism:
“at a small business CPA, I see some of the same attitudes as these guys from the heads of small businesses (especially restaurants). The utmost important thing is seeing that a large profit is created that is then flowed thru to the owner. Then, there is also an belief that they don’t know how business will be tomorrow so they must save as much money as they can to absorb any future shocks. That is not entirely wrong; some of that flows from Michigan’s business climate. But many employees are suffering because of this.
Like you say Yves, that old adage that the boss is the last to get paid has been thrown out the door. It’s now about the boss getting paid whatever he likes regardless if it bankrupts the company. I blame a lot of that on the tax structure. It’s more beneficial to flow profits thru to personal returns than to leave them in retained earnings. And not because the corporate tax rate is so high. It’s because the personal rate is so low.”
FIGURES CAN LIE AND LIERS CAN FIGURE
Well lets see.. 900,000 jobs in just two months is not trivial but it is movement in the right direction. I hope that we can cut spending and taxes to help increase jobs and lower the budget! Lets do this right America! If you need any help for cash I’d look at No Employment Loans or Payday Loans in 1 Hour