Just when we were expecting the economy to go boom it went zoom.
The unemployment rate in November dropped faster than it has in more than 11 years. You have to go back to September 2000 to get a quicker decline. What’s more, the jobless percentage, which fell to 8.6% in November from 9.0% a month before, was the lowest it’s been in two and a half years. This alone is good news but it’s even more amazing considering where we came from. Just four months ago, the obstacles for the economy seemed to be piling up. The debt stand-off in Washington was ugly. The U.S.’s credit got downgraded. Consumer confidence plunged. The Labor Department reported that employers added zero, nada, new jobs in August. And then came the growing debt problems in Europe. A double dip recession seemed inevitable. Apparently it wasn’t. “Clearly, the growth of the recovery has stronger underpinnings than we thought,” says Gary Burtless, a labor market economist at left leaning think tank Brookings Institute. “All of these shocks were not enough to knock us down.”
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But the question remains: Is the economy stuck in a slow growth mode, or is it about to take off?
On the face of it the numbers look mixed. Quick primer: The unemployment report that the Labor Department announces each month is actually the result of two completely separate surveys. One set of data, called the payroll survey, comes from asking employers how many people they hired or fired in the past month. The other set of data comes from calling up individuals and asking them whether or not they are working. The Labor Department does both surveys to cover all the bases, which makes sense. But at times having two different surveys can be confusing.
Last month, for instance, according to the payroll survey, 120,000 more people were employed in November than in the month before. Not bad. But according to the survey of households, the jump in the number of employed people was more than twice that, or 300,000. Economists generally believe the economy has to add about 200,000 jobs a month for the unemployment rate to consistently drop.
Typically, most people defer to the payroll survey when there are differences. That’s because there is a belief that looking at company payrolls is a more accurate count than going door-to-door or calling people on the phone and asking them if they are employed. Self-reported data is often inflated, and individuals are loath admit they are unemployed. What’s more, the household survey is smaller than the payroll survey.
Yet, over the past few months the household survey has proven more accurate. Take August, the month the government said, based on the survey of employers, that the economy had added no new jobs. That month, the household survey said the economy added 331,000 jobs. Since then, the government has gone back and revised the payroll survey up twice. The government now says employers actually added 104,000 jobs in August. In September, too, the payroll survey numbers were revised up to 210,000, from an initial report of 103,000, after the household survey showed that hiring was higher than companies had first reported.
So what’s going on? Nigel Gault, chief U.S. economist at IHS Global, says, “My guess is that the economy is stronger than what the payroll numbers are suggesting, but perhaps weaker than household survey.” Steve Blitz, senior economist at ITG Investment Research, poured some cold water on the numbers by saying that much of the jobs gains came in temporary services, retail and restaurants, where wages tend to be low and jobs more transient. Josh Feinman for DB Advisors pointed out, as did others, that about 300,000 people gave up looking for work. Not a great sign, and one of the reasons why the drop in the unemployment rate may not be as great as it looks. “The job numbers were consistent with modest growth,” says Feinman.
But, to me, the number suggests that the economy could be picking up. The reason has to do with new businesses. When the government goes and asks employers about their payrolls, they survey the same group of companies all year long. So when a growing number of companies are being started, the household number can be a more accurate account of what is going on in the economy. One of the problems of the recovery is that because it is harder to get loans fewer people have been starting up new businesses. Indeed, there has been a fear that the U.S. has lost its entrepreneurial spirit. But banks have recently begun lending more, making it easier for more people to start new businesses. And that’s what we may be experiencing now. That’s not just good news for the unemployed, but for the long-term health of the economy in general.