U.S. Economy Adds 157,000 Jobs; Revisions in Data Show a Stronger Labor Market

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Lucas Jackson / Reuters

The labor market continued its dogged march forward in January, with the federal government announcing that the U.S. economy added 157,000 jobs in January, and that the unemployment rate basically held steady at 7.9%. This was slightly below the 165,000 figure economists were predicting.

But the big news in today’s report were the revisions of previous month’s estimates. The jobs gain in November of 2012, previously reported as +161,000, was revised upwards to +247,000, and the December 2012 figure was revised from +155,000 to +196,000. This addition of 133,000 jobs, plus upward revisions of total employment by 422,000 — both related to the incorporation of new Census population estimates — means that in 2012, the U.S. economy added 181,000 jobs per month rather than the 153,000 we had previously thought. It also means the rolling, three-month average of monthly job gains is 200,000 per month — a marked improvement from the kind of job growth we saw in the middle of 2012.

The unemployment rate, which is estimated at 7.9%, is more difficult to accurately compare to last year’s estimates because of the revision in population estimates that occurs each January when new Census data is incorporated into the process. To put it simply, the Census revises its estimate of the breakdown of gender and ethnicity in the country. These estimates are used to extrapolate the two surveys that make up the Labor Department’s estimate of job growth and the unemployment rate for the country as a whole. But the Labor Department doesn’t reconfigure previous estimates of the unemployment rate, so contrasting December’s estimate of a 7.8% unemployment rate, and today’s estimate of a 7.9% unemployment rate is comparing apples to oranges. That’s why today’s report describes the 7.9% unemployment rate as “essentially unchanged.”

So what does this all mean? January Employment Situation Reports are particularly difficult to analyze because of the Census revisions, but the upshot is that the employment situation in America is better than we had thought. We now know that the U.S. economy in 2012 added significantly more jobs than it did in 2011. And better yet, it appears to be showing pretty good momentum coming in 2013. Perhaps most important is the fact that the private sector is showing resilience in the face of tax increases and the threat of budget cuts from the upcoming sequestration.

At the same time, the economy requires somewhere between 80,000 and 120,000 jobs per month just to keep up with population growth, depending on your estimate of how quickly the labor force is growing. So even if we do keep up the current three-month trend of 200,000 new jobs per month, we’re still talking years before we close the U.S. economy’s employment gap.

Finally, what this report shows us is that the Labor Department’s estimates of employment growth is nowhere near an exact science. These monthly numbers have very large margin’s of error and are subject to huge revisions as time goes on. The revisions in this month’s report paint a rosier picture that we had been seeing, but nobody can say for sure what the state of the job market is in real time.

7 comments
Galen
Galen

Even with the GOP always attempting to slow/obstruct the recovery they created, the economy is ever-so-slowly returning. What if the `right extremists joined in and actually did something, american citizens would be much better off and so would the economy. But that would be asking a lot from the zealots in reason and reality.

sixtymile
sixtymile

Should put an end to assertions by some famous (infamous) business leaders that jobs numbers were cooked for political advantage leading into the election. Sure makes them look like the fools they are.

CharlesEdwardBrown
CharlesEdwardBrown

Millions of jobs could be created if the Federal Government just did their jobs and enforced immigration laws. Deport all the millions of illegal aliens and millions of new jobs will be created for American citizens.

rperhamus
rperhamus

Will the number of young people entering college increase by the same  number of people who defer retirement? It does not appear so, but I wish someone could tell me, as this might tell us all how many jobs are required.

Consider employment to be as a bucket of water with a drain spigot at the bottom. As population growths, the level of water in the bucket must increase to accommodate it. With a population of 310 million, growing at 1.8%, the number of jobs must increase by 465,000 per month. This figure should be revised downwards to ~280,000/month as only 60% of the population are "working" at any one time. So the jobs bucket must increase by 280,000 per month to accommodate population growth.

The drain spigot might be considered as those who leave the job market by retiring, death or other.  What might the requirement be for jobs be if the spigot is closed off some? Some figures show that currently, 20% of the U.S. Population works to the age of 70 now. Many do not retire at 65 for various reasons(longer lifespan, improved health, loss of home values or retirement savings, etc) If you assume that 60% of the BB demographic defer retirement, the total demand for jobs would increase by 200,000, just for BB's. The bucket must increase by this new trend towards working longer. Combining population growth, and people working longer, the total number of jobs must increase by 480,000 to keep employment at 60% of the population.

However, at the other end, the bucket fill rate has been slowed, by deferring that age at which young enter the job market. This might occur as more youth enter college, or sit on the couch, rather than join the workforce. We might hope that the increase in the number who enter college each year is equal to the number of people who defer retirement each year. But is this really occurring? A less popular reason for establishing a retirement age, was to get elders out of the job market, to create opportunities for the young and the restless who were more likely to turn aggressive if unable to find work. Perhaps the rebellious nature of youth has been medicated out of them, and no longer a social stability issue?

Christopher_Matthews
Christopher_Matthews moderator

@rperhamus The main flaw in your analysis is that while the population of the U.S. is roughly 310 million, the working-age population (which the labor department defines as 16 or older) is roughly 245 million. On top of that -- as you point out -- only 63.6% of that group (155 million) are considered "in the labor force." Furthermore, it looks like you are overestimating how quickly the population grows. The latest data puts population growth at .078% per month.  So that works out to about 120,000 jobs per month. But your estimate of population growth is key here, and its a widely disputed figure. Check out this website http://www.frbatlanta.org/chcs/calculator/index.cfm from the Federal Reserve of Atlanta, and you can play around with various inputs to get different estimates of how many jobs are needed per month.

rperhamus
rperhamus

@Christopher_Matthews@rperhamusThank you! I followed your link, then searched for Labor force participation rate" as I am a novice. This lead me to http://data.bls.gov/timeseries/LNS11300000 that shows that the participation rate has dropped from 66% to less than 64%. I entered 66% on the link you provided and recalculated. The result for the Average monthly change in payroll employment needed to achieve the target unemployment rate is 532,356. Is this more accurate?