A qualitative reading of the July jobs report

Reuters

People wait in line to meet with recruiters during a job fair in Melville, New York July 19, 2012.

Article Highlights

  • There was considerable confusion surrounding the July jobs report. We added 163k jobs, but unemployment rate went up.

    Tweet This

  • The unemployment rate increased to 8.3%, but barely. It was 8.217% in June and 8.254% in July.

    Tweet This

  • Seasonal adjustment makes July’s 163k new jobs number an estimate, not a fact.

    Tweet This

  • If you can’t trust the specifics, what good is the jobs report? Take it as a qualitative, not quantitative story.

    Tweet This

  • To fix the labor market, we need more reports that tell a story like July’s. Actually we need to beat July. Often.

    Tweet This

There was considerable confusion recently around the July jobs report. The payroll survey reported an addition of 163,000 jobs, but at the same time the unemployment rate ticked up a tenth of a percentage point? We added jobs, but at the same time the number of employed persons shrank by 195,000? How could these things be true at the same time? More generally, how should you read and interpret a jobs report? Here's our advice: read it as a qualitative story representing a coherent narrative, not as a list of facts.

The most important key is not to latch on to any of the specifics. The unemployment rate increased to 8.3 percent, as was widely reported in the press? Yes ... but barely. In fact, the unemployment rate was 8.217 percent in June and 8.254 percent in July. So it didn't increase by 0.1 - it increased by 0.037.

The economy added 163,000 jobs, as was splashed all over the headlines? Yes ... kind of.  The economy actually lost over 1.2 million jobs moving from June to July. How do you get from a loss of 1.2 million to a gain of 163,000? The 163,000 number comes from a technical adjustment done to smooth employment patterns across the year. This is called "seasonal adjustment" and it accounts for the fact that in the summer months many layoffs occur that are temporary in nature. For example, auto companies shut down to retool plants and teachers leave school for the summer. Since these auto workers and teachers aren't receiving a paycheck at the time of the survey, their jobs "disappear." But the jobs aren't permanently gone - they're just on summer vacation.

In order to avoid classifying these "missing jobs" as job losses, the government estimates how many of these purely seasonal missing jobs exist and adds them back. In the month of July, seasonal adjustment "added" a total of 377,000 jobs, and relative to June, the economy added 163,000 jobs. As a result, instead of showing an employment decline, the jobs report showed a significant uptick in employment. (It works both ways, of course. In May, the seasonal adjustment subtracted jobs.)

This makes July's 163,000 number an estimate, not a fact.

Taking the Qualitative Approach

It should be obvious that the seasonal adjustment could be slightly off. Changes in the way that auto companies handle temporary layoffs, the budget shortfalls at the state and local level which have resulted in teachers being permanently let go, unusually warm winters, massive uncertainty over government policy, strong economic headwinds from Europe, structural changes to the labor market caused by the Great Recession - all these, and more, could render the seasonal adjustment factors slightly, or seriously, inaccurate.

"So controlling for seasonal factors, did the economy add 163,000 jobs in July? Maybe.  But maybe it added 180,000. Or maybe it added 145,000. You get the picture." -Aspen Gorry, Aparna Mathur and Michael R. StrainSo controlling for seasonal factors, did the economy add 163,000 jobs in July? Maybe.  But maybe it added 180,000. Or maybe it added 145,000. You get the picture.

In addition, the 163,000 number is preliminary in the sense that it will be revised in the following two months' reports. In many years, the average monthly revision has been substantial - 73,000 jobs in 2008 and 37,000 jobs in 2011, for example. You can bet that the August and September reports will not show that the economy added 163,000 jobs in July. The July number may be higher, it may be lower, but it won't be the same.

If you can't trust the specifics, then what good is the report? Our advice is to approach the report as if it were telling a qualitative story, not a quantitative story.

What's the Story From July?

We had a good month. The unemployment rate was basically unchanged. The labor force shrank a bit, but not dramatically - same with the employment-to-population ratio. The economy added significantly more jobs than were expected based on the state of the economy and recent data releases. Moreover, the gains were widespread across industries. All in all, the story from July is that the labor market did much better than expected.

Of course, overall the labor market is in terrible shape. Employment is still extremely low. We have a jobs gap which is measured in millions. We have had 42 consecutive months with over 8 percent unemployment. We have millions of workers who have been unemployed for over six months.

This highlights another reality: the qualitative story of one month's report can be different than the qualitative story of the overall labor market. To fix the labor market, we need more reports that tell a story like July's. Actually, we need to beat July. Often.

Aspen Gorry, Aparna Mathur, and Michael R. Strain are economists at the American Enterprise Institute

Also Visit
AEIdeas Blog The American Magazine
About the Author

 

Aparna
Mathur
  • Aparna Mathur is an economist who writes about taxes and wages. She has been a consultant to the World Bank and has taught economics at the University of Maryland. Her work ranges from research on carbon taxes and the impact of state health insurance mandates on small firms to labor market outcomes. Her research on corporate taxation includes the widely discussed coauthored 2006 "Wages and Taxes" paper, which explored the link between corporate taxes and manufacturing wages.
  • Phone: 202-828-6026
    Email: amathur@aei.org
  • Assistant Info

    Name: Hao Fu
    Phone: 202-862-5214
    Email: hao.fu@aei.org

 

Michael R.
Strain
  • Michael R. Strain is a resident scholar at the American Enterprise Institute, where he studies labor economics, public finance, and applied microeconomics. His research has been published in peer-reviewed academic journals and in the policy journals Tax Notes and National Affairs. Dr. Strain also writes frequently for popular audiences on topics including labor market policy, jobs, minimum wages, federal tax and budget policy, and the Affordable Care Act, among others.  His essays and op-eds have been published by National Review, The New York Times, The Weekly Standard, The Atlantic, Forbes, Bloomberg View, and a variety of other outlets. He is frequently interviewed by major media outlets, and speaks often on college campuses. Before joining AEI he worked on the research team of the Longitudinal Employer-Household Dynamics program and was the manager of the New York Census Research Data Center, both at the U.S. Census Bureau.  Dr. Strain began his career in the macroeconomics research group of the Federal Reserve Bank of New York.  He is a graduate of Marquette University, and holds an M.A. from New York University and a Ph.D. from Cornell.


    Follow Michael R. Strain on Twitter

  • Phone: 202-862-4884
    Email: michael.strain@aei.org
  • Assistant Info

    Name: Regan Kuchan
    Phone: 202-862-5903
    Email: regan.kuchan@aei.org

 

Aspen
Gorry
  • Macroeconomist Aspen Gorry studies employment and tax policy. His research focuses on jobs, specifically on how labor market policies impact employment outcomes for young workers. He has written about the impact of minimum wages on youth unemployment, optimal taxation over a worker's life cycle and the importance of early career experience for workers' labor market outcomes. Before joining AEI, he taught economics at the University of California, Santa Cruz.

  • Phone: 435-797-2397
    Email: aspen.gorry@aei.org
  • Assistant Info

    Name: Regan Kuchan
    Phone: 202-862-5903
    Email: regan.kuchan@aei.org

What's new on AEI

image Getting it right: US national security policy and al Qaeda since 2011
image Net neutrality rundown: What the NPRM means for you
image The Schuette decision
image Snatching failure from victory in Afghanistan
AEI on Facebook
Events Calendar
  • 21
    MON
  • 22
    TUE
  • 23
    WED
  • 24
    THU
  • 25
    FRI
Wednesday, April 23, 2014 | 12:00 p.m. – 1:30 p.m.
Graduation day: How dads’ involvement impacts higher education success

Join a diverse group of panelists — including sociologists, education experts, and students — for a discussion of how public policy and culture can help families lay a firmer foundation for their children’s educational success, and of how the effects of paternal involvement vary by socioeconomic background.

Thursday, April 24, 2014 | 12:00 p.m. – 1:30 p.m.
Getting it right: A better strategy to defeat al Qaeda

This event will coincide with the release of a new report by AEI’s Mary Habeck, which analyzes why current national security policy is failing to stop the advancement of al Qaeda and its affiliates and what the US can do to develop a successful strategy to defeat this enemy.

Event Registration is Closed
Friday, April 25, 2014 | 9:15 a.m. – 1:15 p.m.
Obamacare’s rocky start and uncertain future

During this event, experts with many different views on the ACA will offer their predictions for the future.   

Event Registration is Closed
No events scheduled this day.
No events scheduled this day.
No events scheduled this day.
No events scheduled this day.
No events scheduled this day.