What Today’s Job Numbers Mean

Today’s employment report dashed some cold water on hopes the economy has finally begun a robust recovery. For six straight months the payroll survey reported employers creating over 200,000 net jobs. In August net job creation dropped to just 142,000 – well below expectations and only slightly more than necessary to keep pace with population growth.

The household survey also reported anemic job growth. The unemployment rate dropped a tenth of a percentage point (to 6.1 percent) only because more Americans dropped out of the labor force.

The “official” statistics probably understate unemployment rate by between a half and a full percentage point.

None of this proves—yet—that the economy has slowed down. Both the household survey and the payroll survey have significant margins of error. The Bureau of Labor Statistics (BLS) will also revise these payroll survey numbers as more data becomes available. These disappointing numbers could just reflect statistical noise. But a healthy recovery finally arriving seems a bit less likely now.

Moreover, other labor market indicators confirm the economy remains in the doldrums. Average weekly hours remained flat at 34.5 hours a week – the same level as in February 2013. Employers apparently see no need for longer hours or more overtime. Average hourly wages have grown just 2.1 percent over the past year – barely keeping up with inflation. The labor market appears relatively slack.

A new report from Alan Krueger, the former chair of President Obama’s Council of Economic Advisers, adds weight to this concern. He finds fewer Americans answer the BLS household survey than before – with unemployed Americans particularly less likely to respond. Workers who don’t answer the survey don’t get counted at all. Consequently the “official” statistics probably understate the unemployment rate by somewhere between a half and a full percentage point.

Further, labor force participation has fallen to a level (62.8 percent) last seen in the Jimmy Carter administration – a time when far fewer women worked outside the home. Demographic changes, like the aging and retirement of the Baby Boomers, account for less than a quarter of this decrease. The weak economy explains most of the rest.

Despite real improvements over the past several years, the economy remains painfully weak for millions of Americans.