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Government job growth estimates often inaccurate, with consequences seen at the policy level

On Friday, the Bureau of Labor Statistics released their monthly jobs report, which estimated that 80,000 new non-farm jobs were created during October, and that the unemployment rate decreased very slightly to 9.0 percent.

The report also noted revisions to past job numbers. BLS initially estimated that zero new jobs were created in August, but that number has now been revised to 104,000. The increase in jobs for September was initially estimated to be 103,000, and it has been revised to 158,000.

The job numbers report is a statistical estimate based on a survey of non-farm establishments, and thus is never 100 percent accurate. Typically each month’s Establishment Survey estimate is revised in future months, and the BLS report will note any revision made to past job numbers. Those numbers count not just for record-keeping, but they drive policy and become fodder for politicians.

The American Independent looked at the initial estimates of previous job reports, and found that recently BLS has tended to be pessimistic in its initial monthly estimate. The following graph shows the difference between the initial jobs estimate and the revised estimate over the past year:

Image has not been found. URL: http://images.americanindependent.com/chart_2.png

The particularly erroneous August 2011 report, which initially found that zero job growth took place, has been partially blamed on the month’s Verizon strike, during which the striking workers were counted as unemployed. Nevertheless, an upward revision occurred even after the Verizon strike was taken into account.

This doesn’t mean that the establishment survey is always pessimistic. In fact, as the following graph shows, the biggest errors in the establishment survey analysis in recent years were during the height of the recession. Unemployment reports in late 2008 repeatedly underestimated the staggering quantity of monthly job losses in the U.S. economy.Image has not been found. URL: http://images.americanindependent.com/initial_and_revised_bls_job_numbers-1.png

Although BLS doesn’t claim to be delivering perfectly accurate numbers when it releases the monthly job estimates, politicians and the mainstream media nevertheless closely watch the monthly figures and make pronouncements based on them.

When the August report of zero new jobs was first announced, presidential candidate Herman Cain said, “Sadly, the fact that zero jobs were created last month is only fitting for this administration, which is led by a president with zero leadership, zero plans, zero results and zero understanding of basic economics.”

Although the August job numbers have now been revised from zero to 104,000 new net job, it’s doubtful that Cain will have a tripartite acknowledgement of the change.

The monthly job numbers also influence policy.

It’s no coincidence that in the wake of the August report, the Federal Reserve announced its “Operation Twist” policy, as the negligible job growth was taken by many as a sign of an incipient double-dip recession. But now that monthly job growth is once again mediocre but positive, the Federal Reserve’s policy committee has voted not to increase stimulus, despite acknowledging that “the unemployment rate will decline only gradually toward levels that the Committee judges to be consistent with its dual mandate.”

The fact that BLS undercounted new jobs in the past year does not mean that the employment situation has been dramatically improving. Economist and blogger Mark Thoma estimates that 100,000 to 125,000 new jobs are needed each month just to keep up with population growth, much less return to full employment.

The current stagnation can be seen in the employment to population ratio, the clearest indicator of how many people in the United States have a job, which BLS calculates using data from a survey of households rather than employers. That ratio was 58.4 percent in October 2011, and 58.3 percent in October 2010, which shows that in the past year there has been almost no recovery in the job market.

For an idea of where the employment to population ratio is now compared to previous decades, here’s a graph showing the substantial decrease in the proportion of the population with a job in the past few years.

Image has not been found. URL: http://images.americanindependent.com/chart_3.png

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