Initial Reaction

Today’s employment report shows a wild miss in the expected number of jobs. The Econoday consensus estimate was 175,000 and ADP expected 263,000.

Instead, the BLS reported an increase of 98,000. Economists did what they usually do in such situations: blame the weather.

“Throw ADP out, it was the weather in March! Or at least the Category 3 storm that swept the Northeast may explain a much weaker-than-expected 98,000 increase in March nonfarm payrolls. This compares with Econoday’s consensus for 175,000 and a low estimate of 125,000” says Econoday.

“The big storm hit during the sample week of the employment report and apparently delayed new hiring, or at least that will be the takeaway from the report,” added Econoday.

That aside, the internals of the report as measured by the household survey were actually very good. but revisions to the establishment survey weren’t.

Revisions

The change in total nonfarm payroll employment for January was revised down from +238,000 to +216,000, and the change for February was revised down from +235,000 to +219,000. With these revisions, employment gains in January and February combined were 38,000 less than previously reported. Monthly revisions result from additional reports received from businesses since the last published estimates and from the recalculation of seasonal factors. Over the past 3 months, job gains have averaged 178,000 per month.

Let’s dive into the details in the BLS Employment Situation Summary, unofficially called the Jobs Report.

BLS Jobs Statistics at a Glance

• Nonfarm Payroll: +98,000 – Establishment Survey
• Employment: +472,000 – Household Survey
• Unemployment: -326,000 – Household Survey
• Involuntary Part-Time Work: -151,000 – Household Survey
• Voluntary Part-Time Work: -50,000 – Household Survey
• Baseline Unemployment Rate: -0.2 to 4.5% – Household Survey
• U-6 unemployment: -0.3 to 8.9% – Household Survey
• Civilian Non-institutional Population: +168,000
• Civilian Labor Force: +145,000 – Household Survey
• Not in Labor Force: +23,000 – Household Survey
• Participation Rate: +0.0 to 63.0 – Household Survey

Employment Report Statement

The unemployment rate declined to 4.5 percent in March, and total nonfarm payroll employment edged up by 98,000, the U.S. Bureau of Labor Statistics reported today. Employment increased in professional and business services and in mining, while retail trade lost jobs.

Unemployment Rate – Seasonally Adjusted

Nonfarm Employment Change from Previous Month

Nonfarm Employment Change from Previous Month by Job Type

Hours and Wages

Average weekly hours of all private employees were steady at 34.4 hours. Average weekly hours of all private service-providing employees were steady at 33.2 hours. Average weekly hours of manufacturers fell 0.2 hours to 40.6 hours.

Average hourly earnings of private workers rose $0.04 to $21.90. Average hourly earnings of private service-providing employees rose $0.04 to $21.69. Average hourly earnings of manufacturers rose $0.05 to $20.69.

For a discussion of income distribution, please see What’s “Really” Behind Gross Inequalities In Income Distribution?

Birth Death Model

Starting January 2014, I dropped the Birth/Death Model charts from this report. For those who follow the numbers, I retain this caution: Do not subtract the reported Birth-Death number from the reported headline number. That approach is statistically invalid. Should anything interesting arise in the Birth/Death numbers, I will comment further.

Table 15 BLS Alternate Measures of Unemployment

Table A-15 is where one can find a better approximation of what the unemployment rate really is.

Notice I said “better” approximation not to be confused with “good” approximation.

The official unemployment rate is 4.5%. However, if you start counting all the people who want a job but gave up, all the people with part-time jobs that want a full-time job, all the people who dropped off the unemployment rolls because their unemployment benefits ran out, etc., you get a closer picture of what the unemployment rate is. That number is in the last row labeled U-6.

U-6 is much higher at 8.9%. Both numbers would be way higher still, were it not for millions dropping out of the labor force over the past few years.

Some of those dropping out of the labor force retired because they wanted to retire. The rest is disability fraud, forced retirement, discouraged workers, and kids moving back home because they cannot find a job.

Strength is Relative

It’s important to put the jobs numbers into proper perspective.

1. In the household survey, if you work as little as 1 hour a week, even selling trinkets on eBay, you are considered employed.
2. In the household survey, if you work three part-time jobs, 12 hours each, the BLS considers you a full-time employee.
3. In the payroll survey, three part-time jobs count as three jobs. The BLS attempts to factor this in, but they do not weed out duplicate Social Security numbers. The potential for double-counting jobs in the payroll survey is large.

Household Survey vs. Payroll Survey

The payroll survey (sometimes called the establishment survey) is the headline jobs number, generally released the first Friday of every month. It is based on employer reporting.

The household survey is a phone survey conducted by the BLS. It measures unemployment and many other factors.

If you work one hour, you are employed. If you don’t have a job and fail to look for one, you are not considered unemployed, rather, you drop out of the labor force.

Looking for jobs on Monster does not count as “looking for a job”. You need an actual interview or send out a resume.

These distortions artificially lower the unemployment rate, artificially boost full-time employment, and artificially increase the payroll jobs report every month.

Final Thoughts

The establishment survey and the household survey have been way out of sync for a long time. The gap narrowed for the second month. Last month, employment rose by 447,000. This month employment rose by 472,000.

A year ago there were 151,301,000 employed. Today there are 153,000,000 employed. That’s equates to 141,583 per month, solid but not exceptional growth.

Regardless, one has to laugh at economists who cannot predict the weather, even in arrears, until economic reports come out.

Mike “Mish” Shedlock