My father always drank Vodka on the rocks. He warned me that mixing liquor with anything except ice cubes would produce undesirable results the following day. While I mostly drink bourbon or sour mash, I generally follow his advice. And as a good son, I try to follow it regularly.
I wish the press had learned from my Dad. On Friday the US employment data for April was announced with most headlines noting that payrolls rose by 290,000 while the unemployment rate rose from 9.7% to 9.9%. This seeming incongruity was swept away with a passing reference to growth in the labor force. None of this is incorrect but unless you are a macro-nerd and go to the appropriate place -- http://www.bls.gov/web/empsit/ces_cps_trends.pdf -- you could be seriously misinformed.
You will not learn from most of the headlines that employment actually increased by 550,000 persons in April. The issue and confusion – did employment rise by 290,000 or 550,000 – seems worth discussing further. One television commentator was trying to calculate how long it would take the unemployment rate to reach an acceptable (lower) number if job growth continued by 290,000 per month. Of course, she was using the wrong number – it would take about half as long as she calculated if employment continues to rise at 550,000 per month…
So what is all the fuss here? The source of the problem is that the Bureau of Labor Statistics of the US Department of Labor publishes two surveys each month – the Current Population Survey (which tells us employment and unemployment numbers) and the Current Employment Survey (which tells us the number of jobs created). Or more briefly, these are called the Household Survey and the Payroll Survey.
The Payroll Survey is a measure of jobs but not employment. The monthly sample covers 390,000 nonfarm establishments – government and private. These nonfarm establishments tell the government the number of jobs on their payrolls. If a person works for two firms – one full-time and one part-time – they would be counted twice. Anyone self-employed or working for a company categorized as agriculture, would not be counted in the Payroll Survey.
The household survey involves about 60,000 households. They are asked about the labor force status of each household member. The survey classifies each person in the household in one of three ways – (1) in the labor force with at least one job (employed), (2) in the labor force and looking for a job (unemployed), or not in the labor force (16 years old or older and not looking for a job). If you want to know exactly how they categorize people through the survey, go to http://www.bls.gov/cps/cps_htgm.htm
The household survey counts you as employed or not – so it underestimates the number of jobs. It also includes self employed persons, people who work in agriculture , and unpaid members of a family business. Because it is a sample and prone to errors, the BLS explains that it takes a change of at least 436,000 to be statistically significant. So the 550,000 has meaning for April.
The April Household Survey estimated that the labor force increased by 805,000. That means that 805,000 people wanted a job and 550,000 of those people found them. It also means we added 255,000 (=805,000-550,000) to the pool of unemployed. Thus the April unemployment rate (all people unemployed of 15.2 million divided by all people in the labor force, 154.7 million) rose to 9.9%. But surely the good news is that 550,000 persons found work and there were 255,000 encouraged enough by current conditions to move from not looking for work to looking. Compare that to most of 2009 when the civilian labor force was declining.