The Good News In Last Week's Jobs Report is Better Than You Realize

This morning’s employment report makes the President’s case that the economy is not only strengthening, but has been for some months now.  The unemployment rate fell to 7.8 percent; and this time, it was not because more people dropped out of the labor force.  The number of discouraged workers or people “marginally attached” to the labor force actually declined.  Rather, the bullish numbers come not only from creating 114,000 net new jobs in September, but from stronger job creation in July and August than originally reported.  Job creation was revised upward from 141,000 to 181,000 for July and up from 96,000 to 142,000 for August.  In addition, the average hours worked was up, and so was average hourly pay.

The Labor Department actually collects the jobs data in two ways.  The Census Bureau surveys business establishments, which produces the numbers above.  It also surveys households, and the household survey is usually more bullish than the establishment survey.  This month was no exception.  It found that the number of unemployed fell by 456,000 in September and total employment rose by 873,000.  Now, some 600,000 of those newly employed people found only part-time work, so the increase in those employed full-time last month was about 270,000 according to the household survey.    When the establishment and household surveys diverge this much, it usually means that a revision is coming down the line, just as we saw this month for July and August.  It is a good bet that in early December, we will learn that under the establishment data, employment last month rose not by 114,000, but by closer to 140,000 to 160,000. 

The jobs picture is improving, because the elements of a stronger expansion finally are coming together.  Household debt has largely returned to normal levels and housing prices have stabilized, and both are bolstering consumer demand.  Next, we should see business investment strengthen in response to the stronger consumer demand.  In fact, conditions would be even better, but for the rest of the world.  For the first time in years, the biggest drag on the American economy is coming not from the after-shocks of the 2008-2007 financial meltdown, but from a new recession in much of Europe and economic weakening in China.