I noticed a fair amount of confusion Friday morning as to whether this was a good or a bad jobs report. After all, we added 96,000 jobs. That seems like a lot! And unemployment fell from 8.3 percent to 8.1 percent! So isn’t everything moving in the right direction?
Well, no. It was a pretty bad jobs report. But these things are really, really hard to read. So let’s spend a few minutes reading this one.
There are four numbers I watch for in the monthly jobs report: The change in “nonfarm payroll employment”, the change in the unemployment rate, the change in the labor-force participation rate, and the revisions to the previous reports.
Start with the main number: The change in “nonfarm payroll employment.” Don’t worry about the “nonfarm” part. You can ignore that. Just look at the number: The economy added 96,000 jobs in August. What makes this number a bit tricky is that you need to be comparing it to something else: The number of people who entered the workforce.
When the economy is doing well, about 120,000 people enter the labor force each month. That’s young people graduating high school, women going back to work after a child, etc. When it’s doing poorly, as it is now, that falls to about 90,000 (for more on that, see this post). So in order for us to simply break even on jobs, we need to add as many jobs as we’ve added people. In order for us to cut into unemployment, we need to add more. This month, at 96,000 jobs, we barely broke even.
Which brings us to the unemployment rate. If we barely broke even on jobs vs. population, how did the unemployment rate go down?
The answer is that the unemployment rate can go down for a number of reasons. The best reason for it to drop is that we added more jobs than we did people. But another reason for it to drop is that a bunch of workers without jobs simply stopped looking. That can happen because they give up and stop looking, because they stay home to take care of kids, because they go back to school, etc. At any rate, that’s why the unemployment rate dropped this month.
You can see that in the labor-force participation rate, which measures the percentage of working-age adults who are either employed or looking for work. It dropped this month from 63.7 percent to 63.5 percent — that means more than 500,000 workers left the labor force.
Finally, it’s important to remember, as my colleague Zach Goldfarb writes, that almost everything in this report is going to be wrong. It’s all preliminary data that will be revised over the coming months. Usually, those revisions are mild. But sometimes, they’re quite significant. This time last year, the August jobs report showed that we hadn’t gained or lost a single job. Republicans began calling Obama “President Zero.” But later revisions showed we’d actually gained 84,000 jobs, which while not great is a lot better than gaining zero jobs.
And so it’s worth keeping an eye on the bottom of the report, which tells you the revisions to the recent reports. This month, unfortunately, the revisions were all negative, subtracting more than 40,000 jobs from the June and July reports.
Of course, if you don’t want to do all that reading, you can just look at our graphs.