Despite improving profits, rising demand and generally positive flow of economic data, companies did not meaningfully increase their hiring in January. Only 36,000 payroll jobs were added in the month, much lower than expected.
On the other hand, the unemployment rate dropped, from 9.4 percent in December 2010 to 9.0 percent in January 2011, marking a decline of 0.8 percent in just two months.
How could the unemployment rate drop so much when the number of payroll jobs barely budged? The Bureau of Labor Statistics compiles the two numbers – jobs added and the unemployment rate – from two different surveys. The payroll figure comes from the establishment survey – the government asks companies how many people are on their payrolls. The unemployment rate is taken from the household survey – the government asks people about their work status.
The unemployment rate is calculated by dividing the number of people who say they are unemployed into the number of people who say they are in the labor force. The rate can fall when people leave the workforce or quit looking for jobs. And it can fall when fewer people report they are unemployed. When both happen in the same month, that can cause the unemployment rate to drop rapidly. In the past two months, that’s precisely what happened. Since November, the size of the labor force has fallen by 764,000 while the number of unemployed has fallen by 1.178 million. Meanwhile, the number of people who report they are working has risen by 414,000.
36,000 jobs. Is that your final answer? Fortunately, no. Each month, the payroll jobs numbers originally reported in the prior two months are revised. And in January, as has been the trend, data reported in previous months was revised upwards.
In other words, BLS discovered a bunch of new jobs. November’s figure, first reported in December as a 39,000 job gain, was revised in January to a 71,000 job gain, and was revised upward once again – to a gain of 93,000 jobs. The results for December, first reported as a gain of 103,000 jobs, have been revised upwards to 121,000.
Isn’t the government creating lots of jobs? No. The jobs recovery, such as it is, has been largely a private sector affair. Deficits may be on the rise, but government employment – especially at the city and state level – is falling. In January, once again, the private sector added jobs while the government slashed them. Manufacturing added 49,000 jobs in the month. But government jobs declined by 14,000, and have fallen by 335,000 since last May.
Does the headline rate paint the best picture of the labor market situation? Not really. The reality is that there is an enormous amount of slack in the U.S. labor market. That’s why inflation remains contained, despite the rise in commodity prices. As BLS reports, “in the past 12 months, average hourly earnings have increased by 1.9 percent.”
Workers have been unable to demand higher wages in part because so many other workers are sitting on the sidelines. Aside from the headline number, people should look at the BLS’s “alternative measures of labor force underutilization,” which can be seen here.
Aside from those who say they are out of work, BLS aims to estimate:
-- The number of people who are working part-time but would prefer to be working full-time.
-- The number of people who are “marginally attached to the labor force” (i.e. people who are sitting on the sidelines and not really working).
-- “Discouraged workers” (people who have essentially given up because they view their prospects as too dim.
The BLS calls this tally the U-6 measure, better known as the "real unemployment rate". You can also think of it as a truer picture of the sum total of worker frustration.
In January, the U-6 stood at 16.0 percent. That’s down from 17 percent last fall, and marks the lowest such figure since April 2009. But it still highlights the fact that one in six workers isn’t employed to the degree he or she wants to be.
In short, the January employment report shows a snapshot of a labor market that is improving, but at a painfully slow rate.
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