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Wall Street Journal Market Watch


Six Points to Note from Friday's Jobs Report

September 05, 2013

By Diana Furchtgott-Roth

On Friday at 8:30 a.m., the Bureau of Labor Statistics (BLS) will publish the first government snapshot of August’s economic activity — the monthly employment report.

Headline news will be the unemployment rate, forecast to stay at 7.4%, and the number of nonfarm payroll jobs created, forecast at 180,000, up from 162,000 in July. The details inside the BLS’s 25 tables are especially important this week because the Fed is considering tapering off its monetary accommodation as the economy improves.

Here are six data points to watch when you go to and click on “Employment Situation.”

If the unemployment rate unexpectedly declines another two-tenths of a percentage point, as it did last month, a close examination of the change in the labor-force participation rate — the fraction of adult Americans either employed or looking for work — is essential. Both data points are taken from a survey of households.

If more people leave the labor force, then a decline in the unemployment rate is not necessarily good news because people have chosen to give up their job search before they find employment. That means fewer workers and a weaker economy.

Last month, the labor-force participation rate declined by a tenth of a percentage point to 63.4%, the same level as in 1978. The rate has not yet recovered from the 2007-2009 recession. Between 2003 and 2008, the labor-force participation rate remained around 66%. It tanked in 2009 to 65.5% and is still trending downward.

As the labor market recovers and more people look for work, the unemployment rate is likely to rise. It takes time to find a job, and job seekers are registered as unemployed while they search. So it would not be bad news if the unemployment rate on Friday were to rise due to an increase in the labor force participation rate. This would show that people were confident enough to resume their job search.

Broader measures of unemployment

The BLS produces six measures of the unemployment rate, known as U-1 to U-6. The BLS, and therefore the media, generally focus on the middle rate, U-3, which is currently at 7.4%. U-3 is defined as unemployed workers, and does not include discouraged workers and those who are marginally attached to the labor force — as well as those working part-time when they prefer full-time work.

Those people are included in U-6. Last month, U-6 was 14%, almost twice the level of the more widely reported U-3 unemployment rate. The broader U-6 measure mirrors the declining labor-force participation rate because many people who say they are not looking for work would likely take jobs if they were available. Over the past decade, the difference between U-3 and U-6 has increased from four to seven percentage points.

Revisions to prior jobs numbers

The net job-creation number, taken from a survey of firms, can propel the stock market either up or down. But unlike the unemployment rate, the BLS’s estimate of the change in nonfarm payroll employment is revised in two successive months, and then adjusted again next year. Even if the BLS announces that 180,000 new jobs have been created, these numbers will be revised.

Consider the revisions to past months in Chart 3. In May, the BLS announced that 165,000 new nonfarm payroll jobs were created in April. But in June, the BLS said that the number was lower, only 149,000. In July, the BLS said that 199,000 new jobs were created in April. July was a happy month for policymakers because the BLS also reported that 195,000 jobs were created in May, and 195,000 in June. Three months of almost 200,000 jobs created!

But the joy did not last. When it came to August, the BLS revised down May’s figure to 176,000, June’s figure to 188,000, and produced a first estimate of 162,000 for July. It goes to show that the job-creation numbers might move markets, but they are subject to revision.

The last paragraph in the BLS’s description of the data gives the revised jobs numbers from the two prior months. On Friday, newly revised data will be given for June and July.

Aggregate hours worked in the economy

One of the most interesting tables in the employment report, B-9, comes at the very end. Look at it first because it shows indexes of aggregate weekly hours in the economy.

If the index rises, it means that Americans worked more hours. If it declines — as it did last month, by one-tenth of a percent — it means that people worked fewer hours.

Last month, job creation was up, unemployment was down, but aggregate hours worked declined. Employers hired more people, but for fewer hours each. In table A-9, the BLS provides data on people who generally work part-time. Last month, another 174,000 people reported that they worked part-time.

It is possible that the new Affordable Care Act regulations are encouraging employers to add part-time rather than full-time employees. (If employees work fewer than 30 hours per week, employers do not have to pay penalties for not offering health insurance.) Whatever the reason, fewer hours worked means less production and lower economic activity. Let us hope that hours worked rose in August.

Teen-unemployment rate

Teen-unemployment rates have always been higher than adult-unemployment rates. In July, the teen unemployment rate declined from 24% to 23.7%. Will it decline further in August?

Ten years ago, the teen unemployment rate was 18%. It peaked at 26% in 2010 before declining to its current level. African-American teen unemployment is substantially higher, at 42%. High teen-unemployment rates are signs of social problems ahead. When low-skill workers find it difficult to enter the labor market, their problems finding jobs can persist for years into the future. About half of minimum-wage workers are under 25.

Long-term unemployed

Will long-term unemployment rise or fall in August? Those out of work for 27 weeks or longer, defined as the long-term unemployed, represented 37% of the unemployed in July, up from 36.7% in June, but down from 40.6% of the unemployed a year earlier.

The larger the fraction of long-term unemployed, the more difficult it is to reduce unemployment. People out of work for longer periods of time tend to lose hard skills, such as familiarity with the latest technology, and soft skills, such as getting up on time and networking. Training programs for long-term unemployed are more challenging, both for teachers and learners.

The best cure for long-term unemployment is increased economic growth, which pulls workers into the labor market. North Dakota, with its unemployment rate of 3%, the lowest in the nation, has few long-term unemployed.

The Fed’s actions in September will be influenced by the numbers that come out on Friday. Look behind the headlines, and judge for yourselves.

Original Source:



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