Victory! (with lots more to do)
Click for PDF Version.
View Jobs Day Fact Sheet here.
By Russ Grote, (202) 822-1205, rgrote@hamiltonps.com
With the unemployment rate dipping below the politically significant 8.0 percent this past month, the HPS Jobs Model has come to a positive end. While it seemed President Obama would have a difficult time seeing unemployment in the sevens by Election Day, job gains last month surprisingly pushed the unemployment rate across the 8 percent threshold.
The comforting aspect of this jobs report is that the 0.3 percent decline in the unemployment rate was driven by job growth, not declines in the labor market. The establishment survey found 114,000 jobs were added in September and the household survey saw over 800,000 jobs added this month with over 400,000 people re-joining the labor force.
While the household survey number may seem abnormally high, it is a highly volatile month-to-month metric. In fact, the household survey showed 316,000 jobs lost in the two previous months, while at the same time the establishment survey showed 259,000 jobs gained. With a longer window of six months, we find that the household survey has averaged 157,000 jobs added per month, which is consistent with the establishment survey and other economic forecasts. Moreover, the BLS’ semi-annual re-benchmarking exercise found they undercounted the jobs numbers by 386,000 since March of this year. These factors suggest the 0.3 percent drop, while surprising, reflects real job growth rather than a statistical abnormality.
Today’s report is an economically significant milestone and will have headline effects with the Election a month away. Nonetheless, as we have noted before, voters will base their view of the economy on their own experience. These numbers simply provide a helpful window into voters’ current attitudes towards the economy.
With that dynamic in mind, when we began this project in February of 2011, we stated, “If the unemployment rate can break this 8 percent level, President Obama can credibly argue that he is making progress on jobs, even though the unemployment rate will still be historically high.” Yet, during this process we have seen some developments that have complicated this view – namely, a significant decline in the labor force participation rate.
Since February 2011, the labor force participation rate has fallen from 64.2 percent to 63.6 percent. If the economy were at full steam, the labor force participation would be 65 percent today, which would equal an additional 3.5 million workers in the labor force. The drop in the labor force participation rate, along with modest job growth, has driven the unemployment rate below 8 percent today.
The big question is, “What portion of this drop is attributable to job growth?”
If the participation rate had remained at 64.2 percent, the unemployment rate would be 8.6 percent today. With the unemployment rate at 9.0 percent in February of 2011 and 7.8 percent today, one-third of the drop in the unemployment rate is attributable to job growth, while two-thirds of the drop is due to the decline in labor force participation.
We are happy to put our Jobs Model on the shelf as another round of jobs numbers shows continued economic improvement, but the pace and nature of the unemployment rate drop offer a reminder that Washington still has work to do for the U.S. economy to get back to full speed.
Russ Grote is an analyst at Hamilton Place Strategies. Prior to joining HPS, Russ conducted field research on the economic development in the EU. He holds a BA from the University of North Carolina at Chapel Hill.