December 3, 2023

Economix: Correcting the Picture on Jobs

11:29 a.m. | Updated This is one of those months when it’s impossible to tell a consistent story about the jobs report.

Job growth was unexpectedly strong last month. The unemployment rate rose to 9 percent, from 8.8 percent, its biggest one-month increase in more than a year-and-a-half.

Which of the two numbers should you believe? The short answer is the job-growth number. The labor market appears to be improving. The rise in the unemployment rate is mostly a reflection that the rate fell by an artificially large amount over the previous several months.

It doesn’t actually mean unemployment rose last month. Instead, it reflects a kind of statistical catch-up. The old picture of the job market, as presented by the household survey, had been too optimistic. (Did anyone really believe that the job market recently improved at its most rapid two-month pace since the 1950s, as the unemployment rate suggested?) Today’s report helps correct the picture. This is simply the nature of surveys: they have noise in them.

With all this being said, the rise in the jobless rate is not irrelevant. Before today, you could have argued that the employer survey was vastly underestimating the pace of job creation — in other words, the job market was healthier than the employer survey suggested even if it wasn’t quite as healthy as the household survey suggested. After today, it’s much harder to make that case.

The job market continues to improve, which is certainly welcome news. But the pace of improvement remains modest. Unfortunately, that’s the typical pattern in the wake of a financial crisis.

Update: Some readers have asked whether the unemployment rate can rise even as employment is growing because more people start looking for work — and thus count as officially unemployed. Theoretically, the answer is yes. This does happen sometimes. But it didn’t happen in April. The unemployment rate rose last month because the household survey showed a decline of 190,000 jobs, not because of a surge in job seekers. That’s why there is no way to reconcile last month’s results of the household survey and employer survey. They make sense only in the context of previous months.

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