President Obama on his way to Miami.
Understated Progress on Jobs?
The best part of this morning’s jobs report may be the hints that the government is understating actual job growth.
monthly estimate of employment changes is often too pessimistic in the early stages of a recovery (and too optimistic in the early stages of a downturn). The department tends to underestimate how many new businesses are starting as the economy picks up.
There’s no way to know whether that is happening now, but there are reasons to suspect it might be. The other main survey the department does is of households, rather than businesses. It has a smaller sample size and so usually is not as accurate as the survey of businesses. At turning points, though, the household survey can detect changes before the business survey does. As Floyd Norris has explained, the numbers from the business survey may well end up being revised later on — as more accurate data on start-ups flows in — and looking more like the sunnier household survey.
Today’s report clearly raises the odds that we’re in the middle of such a period now.
Average job growth over the past three months has been only 102,000, according to the survey of businesses. But it’s been 221,000 — significantly more than population growth — according to the survey of households. The unemployment rate, which is calculated from the household survey, has dropped sharply in the past few months in large part because of these job gains.
It’s particularly noteworthy that the Labor Department today revised upward the business survey’s estimated job growth for both December and January. That may mean more revisions are coming.
Today’s employment report shows that private sector payrolls increased by 222,000 in February, marking 12 consecutive months of growth that has added 1.5 million jobs at private firms. The unemployment rate fell for the third straight month to 8.9 percent. The 0.9 percentage point drop in the unemployment rate over the past three months is the largest such decline since 1983, and it has been driven primarily by increased employment, rather than falling labor force participation.
Though unemployment remains elevated, we are seeing signs that the initiatives put in place by this Administration – such as the payroll tax cut and business tax incentives for investment – are creating the conditions for sustained growth and job creation. The steep decline in the unemployment rate and the overall trend of economic data in recent months has been encouraging, but there is still considerable work to do to replace the jobs lost in the downturn. We will continue to work with Congress to find ways to reduce spending, but not at the expense of derailing progress in the job market, making the investments we need to educate our workers, investing in science, and building the infrastructure our companies need to succeed.
In addition to the increases last month, the estimates of private sector job growth for December (now +167,000) and January (now +68,000) were revised up. Overall payroll employment rose by 192,000 last month. The sectors with the largest payroll employment growth were professional and business services (+47,000), education and health services (+40,000), manufacturing (+33,000), and construction (+33,000). State and local government experienced a large decline (-30,000), and has shed jobs in 14 of the past 16 months.
The overall trajectory of the economy has improved dramatically over the past two years, but there will surely be bumps in the road ahead. The monthly employment and unemployment numbers are volatile and employment estimates are subject to substantial revision. Therefore, as the Administration always stresses, it is important not to read too much into any one monthly report.