US jobs report an ‘utter mess’
By Robin Harding in Washington Published: January 7 2011 13:57 | Last updated: January 7 2011 19:16
Markets hoped that December’s payroll report would mark a breakthrough for the US economy’s recovery, with a surge in private job creation towards 200,000 – a level that would finally put a dent in the unemployment rate.
Instead they got a murky mixture of a report, prompting one economist, Rob Carnell of ING Bank, to call it an “utter mess” and question why markets focus so much on payrolls at all.
EDITOR’S CHOICE
Editorial Comment: Something stirring in the US economy - Jan-07.Gavyn Davies: Nonfarm payrolls - Jan-07.FT Alphaville: Employment report - Jan-07.US jobless claims add to signs of recovery - Jan-06.Opinion: Now Obama needs to talk up America - Jan-05.Analysis: America – riveting prospects - Jan-06..The problem is that the monthly payrolls report contains two different measures – a survey of households and a survey of employers – and in December they pointed in different directions.
The employment survey, the normal focus of attention, showed overall growth in payrolls of only 103,000. That was well below expectations, especially after a disappointing November report and a remarkably high estimate from private- sector payroll processor ADP earlier this week.
Yet the household survey, from which the unemployment rate is calculated, sent a completely different message. It showed an extra 297,000 people in jobs and 260,000 fewer people in the labour force. The combination of the two was enough to cause a drop in the unemployment rate from 9.8 to 9.4 per cent.
The reality – taking the trend in both measures and other recent data together – is likely to be somewhere in between. Jobs growth is picking up a bit to more than 100,000 a month but still shows no sign of a dramatic acceleration.
“At the moment [both surveys] send the same message: things are doing OK but not as well as you would have hoped or expected given the apparent strength of growth,” said Paul Dales, senior US economist at Capital Economics in Toronto.
Ben Bernanke, Federal Reserve chairman,struck a similar note in testimony to Congress prepared before the release of the payrolls data. “Although recent indicators of spending and production have generally been encouraging, conditions in the labour market have improved only modestly at best,” Mr Bernanke said.
There are a few theories to explain all the moves in the data. One is seasonal adjustments, which tend to be tricky at the end of the year and may have distorted the ADP numbers.
The difference between the household and business survey data is most likely just a one-off, although there are some suggestions that the business survey may have a slight bias towards larger companies, and their hiring behaviour could be different.
Most analysts attribute the fall in labour force participation and therefore the fall in the unemployment rate, to the expiry of long-term unemployment benefits in December.
If you no longer receive unemployment benefits, the theory goes, then you no longer have any reason to tell a survey you are ac-tively looking for work. The number of “discouraged workers”, who say that they are no longer looking for a job because they do not think they can find one, was 1.3m in December.
Congress has since renewed long-term unemployment benefits. A likely consequence is that the size of the labour force will bounce back in January, reversing the fall in the unemployment rate.
A further disappointment was in the average duration of a spell of unemployment, which rose from 21.7 to 22.4 weeks, suggesting that those people who are finding jobs have not been out of work for long.
In his testimony, Mr Bernanke said “persistently high unemployment, by damping household income and confidence, could threaten the strength and sustainability of the recovery”.
He will have to wait for any real sign of momentum in the US labour market.
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