Things are seldom what they seem, skim milk masquerades as cream; highlows pass as patent leathers; jackdaws strut in peacock’s feathers. Very true, so they do. So go the lyrics from Gilbert & Sullivan’s HMS Pinafore. While the language from 1878 may be a bit cryptic, the gist of these lyrics describe the most recent jobs report, which appears to show a massive decrease in the unemployment rate.
We recently put out an article discussing how the federal statistical agencies (while they are a total pain in the butt to work with) actually do an amazingly good job at collecting and reporting information on the country. I still agree with that notion; however, I really had a difficult time trying to reconcile the numbers in the most recent Jobs Report.
At first blush, it really appears as if the numbers reported by the Bureau of Labor Statistics (BLS) had to be fixed so as to promote the Administration’s claims that borrowing and spending was finally creating huge numbers of jobs. But the report really did not show that. In fact, based on the numbers total non-farm payroll employment increased by just 114,000 jobs in September, which is below 2012’s monthly average of 146,000, and not at all spectacular when compared to 2011’s monthly gain of 153,000. These numbers cannot bring down the unemployment rate, and in fact, the only reason that unemployment has been falling over the past two years is that the labor force has been shrinking as more and more people either retire, go back to school, or find alternative means to generate income outside of the labor force.
But in September, the BLS reported a sharp decrease in the unemployment rate of 0.3 percent. How can this be the case with lukewarm job creation? If the numbers don’t add up, is not there some sort of funny business going on here?
Actually no. And actually, I think that what this most recent report shows is that politicians actually can create jobs in the short term. Let’s examine each of these two points.
First, how can there be such a disconnect between the number of jobs created and the unemployment rate? Actually, this is not uncommon since the employment numbers are based on one survey and the unemployment rate is based on another. Surveys are never great predictors of reality – at least in the short term. A long series, like the BLS employer and household surveys do provide an excellent gauge over the longer term, but month to month variations often do not make sense and often do not capture reality. Since the employer survey measures jobs created at larger, more established firms and the household survey captures more small businesses, start ups and self employed people, these discrepancies often happen in the short term. So in reality, the unemployment rate may fall faster than the job numbers suggest, but I think the drop will dissipate following November.
This is because in the short term politicians are excellent job creators – that is during elections. Over the last couple of months, candidates for President, Congress, Governor, state legislatures, school boards, city councils, dogcatcher, sheriff, you name it, have been ramping up their campaigns. They have spent billions of dollars on polls, advertisements, canvassing, pamphlets, even those annoying yard signs. And they have hired thousands of people to do this. In fact, the same sort of thing happened to a smaller extent in September of 2008, the last presidential campaign year. This hiring happens at a level that would not be captured by the employer survey since none of these campaigns are on that instrument’s radar screen; but they would be captured in the household survey, and they would be reflected in the half a million new part time jobs that were reported in September.
While it is impossible to know if my hunch is true – at least until the campaigns wind down in December, the more detailed employment numbers (presented in the table) do seem to bear this out. In fact, nearly all of the net employment created in September was in office support services and professional and related occupations, the categories that all of these campaign workers would be lumped into. Outside of these areas, unemployment actually rose, with the economy actually losing 389,000 jobs.
So, it looks like the skim milk of the campaigns may be masquerading as the cream of an economic recovery. I hope I am wrong, but things are often not what they seem.