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.