What gives? Is the employment situation improving or not?
The U.S. Labor Department said there were 244,000 new jobs in April, but at the same time raised their estimate of the nation’s unemployment rate from 8.8 to 9 percent.
The reason for this discrepancy 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 a 140,000 nonagricultural businesses. The 244,000-job increase for April is the sixth monthly increase in a row and a good sign for the overall economy.
A similar job growth trend is found in Idaho labor data. The latest estimates show the number Idahoans at work growing faster than the number Idahoans looking for work. This hasn’t been the case since 2007. However, Idaho’s unemployment rate, at 9.7 percent, is still well above the national average.
Unemployment rates are calculated from a much smaller household survey, which can fluctuate widely month to month. This volatility is a big reason why economists and the financial markets more closely follow the establishment report.
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 from 60,000 household surveys includes many workers not found in the establishment survey, such as agricultural workers and the self-employed.
The 0.2 percent point increase for April was the first rise in the unemployment rate since November 2010.
Given the sample-size weakness and volatility of the household report one is tempted to disregard it and conclude from the establishment report that things are improving. Unfortunately, details in both reports show otherwise.
First, the establishment report says workers are only averaging 34.3 hours per week and hourly earnings are up just 1.9 percent in the last year. When the amount of work is low and wages don’t keep up with inflation overall, economic conditions do not improve.
Second, the unemployment rate rose because there was a big drop in farm workers and the self-employed. Weak agricultural employment is evident in Idaho. Nineteen primarily rural Idaho counties still have double-digit unemployment rates.
The household report further shows there are more than 8 million U.S. workers employed part time for economic reasons. These “involuntary part-time workers” are potential consumers that have had their hours cut back or are unable to find full-time jobs. This again reduces potential demand and the outlook for an improving economy.
The recession may be over, but we are not out of the woods. A weak labor market continues to hold back incomes and economic growth. Not until employers have better incentives to invest in new products, new businesses and more workers will the economy truly recover.