The U.S. economy lost 1.2 million jobs between June and July. But that's not how it got reported. When the Bureau of Labor Statistics (BLS) released its jobs figures for July, it said the economy gained 163,000 jobs. So what gives?
BLS isn't hiding anything. The discrepancy just has to do with what's known as "seasonal adjustments." The U.S. economy follows certain predictable patterns in hiring and layoffs every year. School districts always let workers go for the summer and hire in the fall. Retailers always staff up for the Christmas holidays and lay people off afterwards. Students always flood the labor market in June.
So if we want to know how well the economy is doing, we want to know how many jobs were added after taking these predictable fluctuations into account. Some seasonal adjustments are necessary before the data can tell us anything useful.
And this is exactly what BLS does in its monthly jobs reports. As Jacob Goldstein of Planet Money points out, the U.S. economy had 1.2 million fewer jobs (pdf) in July than it did in June. But, according to the bureau, the economy still had 163,000 more jobs than one would've expected, given seasonal trends. That's a sign of a steadily recovering labor market. So BLS reported it as a 163,000 gain in jobs.
In theory, that makes sense. But some economists and analysts now wonder if the BLS seasonal adjustments are somehow off a bit. If the financial crisis and recession mucked with the seasonal ebb and flow of the economy, then the adjustments that BLS makes for its monthly reports might be a bit skewed. Some jobs reports might look much better than they actually are. And others might look worse.
There's some reason to suspect this is happening. For the past few years, as the chart below from Kevin Drum shows, the BLS jobs reports have followed an odd pattern each and every year (the chart shows new jobs gained in excess of 90,000, in order to take into account population growth):
The summer jobs reports are typically lousy while the fall and winter jobs reports are often much, much stronger. Maybe that's because the U.S. economy is following a roller-coaster pattern--healthy in winter, sick in the summer. Or maybe, as Floyd Norris suggests here, the economy is actually making slow, steady progress and the seasonal adjustments are just making things appear topsy-turvy.
Over the longer term, these fluctuations shouldn't matter much. Inaccurate seasonal adjustments might make some jobs reports look unduly pessimistic and others unduly optimistic. But they can't mask the overall health of the economy for too long. Eventually, the jobs reports balance out.
So look at the long-term trends. For the past one-and-a-half years, the U.S. economy has added about 152,000 jobs per month on average. It's a modest, but certainly not terrific jobs recovery: According to the Hamilton Project's jobs calculator, the U.S. economy won't get back to full employment until 2025 at this pace. Still, it's probably more accurate to watch that long-run average than to fixate on any one monthly jobs report.
Update: Bill McBride of Calculated Risk has some more commentary and charts on this topic.