There seems to be a lot of skepticism about today’s solid employment report in certain corners of the Twitterverse. How is it that unemployment could fall a head-turning .3 percentage points—from 8.1 to 7.8 percent—when the economy added a mere 114,000 jobs last month?
There are a couple things to say in response. First, as people who follow this stuff know, the unemployment rate and the payroll numbers are calculated from two different surveys. The unemployment rate comes from a survey of households, the payroll (i.e., jobs) number from a survey of businesses. They don’t match up perfectly, and certainly not from month to month, since there’s often a lot of noise in any given survey. But they do tend to converge over time.
Which leads to the second point: Even though the numbers do come from different surveys, today’s report shows that the surveys are starting to tell us similar things, as the labor economist Betsey Stevenson points out. Namely, that the job market has been stronger than we thought in recent months. The drop in the unemployment rate speaks for itself. As for the payroll numbers, they were revised upward by at least 40,000 in both July and August. So it’s not like the trends are headed in different directions.
Finally, the reason that more informed skeptics (i.e., not Jack Welch) are probably surprised by today’s big drop in the unemployment rate is that, as the economy improves, the rate tends to rise a bit, or at least move sideways for a while, before eventually easing down. That’s because rising economic optimism encourages people who had dropped out of the labor force, and therefore aren’t counted in the standard unemployment measure, to get back into the labor force, where they boost the unemployment rate until they find a job. And, indeed, more people did join the labor force last month—a whopping 418,000, according to the household survey.
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