Why there’s cause for optimism despite mixed signals on U.S. employment | Peter Crabb

Are we out of the woods? Is the economy improving or not?

The employment data is sending mixed signals.

The U.S. Labor Department estimates there were 661,000 new jobs added in September, but this was below the 800,000 jobs many economists had forecast for the month. In the same report, the nation’s unemployment rate fell from 8.4% to 7.9%, which amounts to 970,000 workers.

So, jobs aren’t opening up as fast as expected, but nearly a million less people are out of work. Is this good news or bad?

One reason for this conflicting read on the economy is found in the differences between how these economic data are collected. Each month, the Labor Department conducts two surveys of employment conditions, the establishment survey and the household survey. Each survey has different objectives and uses a different approach.

The establishment survey records total employment, hours worked and employee earnings. The Labor Department collects these data monthly from the payroll records of 140,000 nonagricultural businesses. Unemployment rates are calculated from a much smaller household questionnaire, which can fluctuate widely month to month.

The Labor Department uses the household survey to get information on the total number of workers in the country and the percentage of that group that can’t find work (unemployment rate). The sample includes only 60,000 households and uses more subjective questions on individuals’ efforts to find work.

Given the sample-size weakness and volatility of the household report, many economists look more to the establishment report to gauge the health of the economy. Two additional statistics from this report in September suggest the economy is improving.

First, the establishment report says workers in the private sector are averaging 34.7 hours per week, which is the highest weekly rate in over 10 years. Second, the average hourly earnings for all employees on private, nonfarm payrolls is now $29.47, nearly 4% higher than last year after adjusting for inflation.

Idaho employment data shows similar positive trends. The Idaho Department of Labor reports that the state’s unemployment rate is half the national average. The most recent report from the U.S. Bureau of Economic Analysis states that Idaho’s personal income was up 9% over the previous year.

While we may not be out of the woods so to speak, underlying employment trends are strong. There’s reason to be optimistic despite all the problems that surround us.

Peter Crabb is a professor of finance and economics at Northwest Nazarene University in Nampa. prcrabb@nnu.edu

This story was originally published October 13, 2020 at 5:00 AM.