Morning Must Reads: Never Before Has So Much Stupid Led to So Much Learning!

At 7.8% in September, the U.S. unemployment rate was below 8% for the first time since January 2009. Five minutes after the new numbers were released, former General Electric CEO Jack Welch suggested the Bureau of Labor Statistics (BLS) had juked the stats.

This one tweet framed most news on the economy on Friday, over the weekend and even this morning. Looking over it all, one thing can be said: never before has so much stupid led to so much learning. 

First, Larry Mishel explains how absurd the Welch claim is while also reminding us of a classic story in labor market statistics: Richard Nixon's campaign to purge the "Jewish Cabal" from the BLS. The staff at the BLS here in Pennsylvania and in DC as well as their counterparts at the Center for Workforce Information and Analysis in the Pennsylvania Department of Labor and Industry are among the most professional and trustworthy public servants I have ever met. 

BLS is a highly professional agency with dozens of people involved in the tabulation and analysis of these data. The idea that the data are manipulated is just completely implausible. Moreover, the data trends reported are clearly in line with previous monthly reports and other economic indicators (such as GDP). The key result was the 114,000 increase in payroll employment from the establishment survey, which was right in line with what forecasters were expecting. This was a positive growth in jobs but roughly the amount to absorb a growing labor force and maintain a stable, not falling, unemployment rate. If someone wanted to help the president, they should have doubled the job growth the report showed.

Paul Krugman provides a brief introduction to something that new business writers at city newspapers struggle with all the time — there are two surveys that track employment. On a monthly basis, they can tell a very different story, but over a longer period, they tend to tell the same story on the direction of employment.

Some background: the monthly employment report is based on two surveys. One asks a random sample of employers how many people are on their payroll. The other asks a random sample of households whether their members are working or looking for work. And if you look at the trend over the past year or so, both surveys suggest a labor market that is gradually on the mend, with job creation consistently exceeding growth in the working-age population.

Catherine Rampell at The New York Times digs into the household survey and, in the process, tells a very helpful story about seasonal adjustment and how it was a factor in the employment surge in the household survey in September.

In other words, seasonal patterns might be evolving — people starting school and leaving their summer jobs earlier in the summer — which has big implications for how the Labor Department digests and reports the monthly employment data. The Bureau of Labor Statistics adjusts its raw survey data to correct for seasonal patterns, and since a decline in employment is expected for those 20 to 24, the economists at the bureau increased the level of employment for this group in the seasonally adjusted numbers.

Changes in seasonal patterns like this one can introduce more error into the headline numbers, and can at least partly explain why the overall change in household employment looked so much bigger in September than seems plausible. After seasonal adjustment, the increase in employment among those 20 to 24 was given as 368,000. That’s about 42 percent of the overall increase in employment growth for people of all ages. (After making seasonal adjustments on the August figures, the employment level for 20- to 24-year-olds was reported as declining by 250,000.)

Nate Sliver, in a way only he can, provides some very helpful caution about reading too much into any one month's employment numbers.

Whenever a new set of jobs numbers is announced, it is important to keep in mind just how noisy the data can be.

Forecasts of the monthly growth in nonfarm payrolls miss by 68,000 jobs on average. That means that the margin of error on the forecasts, enough to cover 95 percent of all possible outcomes, is wider still: plus or minus about 170,000 jobs.

This is not merely because economic forecasting is difficult. It is also because the economy is a hard thing to measure, and the initial estimates of jobs growth are crude. On average, the initial monthly jobs numbers are eventually revised upward or downward by 70,000 jobs.

Nor do the monthly revisions necessarily cancel out. Instead, whole seasons, and indeed whole years, can sometimes be revised.

Here are the highlights of the analysis of the September employment situation from the country's best labor economists.

In September, public-sector employment increased by 10,000. However, over the last four years, it has declined by 572,000. With kids heading back to the classroom this fall, it’s worth considering how much of that drop has hit public schools. Around 40 percent of the decline in public sector employment over the last four years was in local government education, which is largely jobs in public K-12 education (the majority of which are teachers, but also teacher aides, librarians, guidance counselors, administrators, support staff, etc.). Furthermore, public K-12 enrollment increased by 0.8 percent over this period (using the enrollment growth rates found in Table 1 here). Just to keep up with this growth in the student population, employment in local public education should have grown at roughly the same rate, which would have meant adding around 62,000 jobs. As the figure shows, adding what was lost to what should have been added to keep up with the expanding student population, the total jobs gap in local public education as a result of the Great Recession and its aftermath is over 300,000.

 

This report provides further reason to dismiss the argument that unemployment is structural. The unemployment rate for workers in the two hardest hit sectors, construction and manufacturing, was 11.9 percent and 6.7 percent, respectively in September, meaning that the former contributed a trivial amount toward raising the overall unemployment rate, while the latter lowered it slightly.

Today’s jobs report sent mixed signals about the overall job market but left no doubt that long-term unemployment remains a significant problem — making clear that policymakers must not let emergency federal unemployment insurance (UI) expire at the end of the year.

Two-fifths of the unemployed in September (4.8 million people) had been looking for work for 27 weeks or longer; that long-term unemployment accounted for 3.1 percentage points of the overall 7.8 percent unemployment rate (see chart). Yet emergency federal UI, which provides additional weeks of benefits to the long-term unemployed (i.e., benefits beyond the 26 weeks of regular UI in most states), is scheduled to expire on December 31.

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