Today’s economic pessimists never tire of pointing out that payroll job growth in this current cycle has been weaker than in the 1990s. But, assuming they are right, what are the implications? How big of a problem is it? More importantly, is it reasonable to accept these assertions at face value?
To understand the real trend in employment, we have to examine the data carefully, within the context of the entire economy and the demographic realities that underpin it.
As BusinessWeek1 reported recently, a key to the robust growth of the economy, despite a dramatic housing market contraction, is that so many people are working. And, they’re typically working more than the numbers tend to show. The recent upward revision from “job losses” to “job gains” demonstrates how “slippery” the numbers can be. As a result, it often pays to take a wait-and-see attitude before jumping to conclusions based on the latest figures, which may be little better than guesses.
Consider this: A loss of 4,000 jobs was the original report for August 2007. In part, that provided important motivation for the initial Fed rate cut of 50 basis points. But in September, the Bureau of Labor Statistics revised that loss of 4,000 jobs to a gain of 89,000 jobs.2 In short, their original report was off by a factor of more than 20, which is no more accurate than a random guess. That raises the question: If the numbers are going to be so badly misleading, shouldn’t the government wait to release the numbers until after more reliable figures are available?
Perhaps. But the level of uncertainty in the early numbers is not the biggest problem with employment and payroll data. According to a recent Monday Morning Outlook3 by Brian Wesbury and Robert Stein, even much of the “accurate” data is highly misleading. For example, economic pessimists insist that payroll job growth in this cycle has been weaker than in the 1990s. Over the past three years, non-farm payroll jobs have grown at an average monthly rate of 180,000. At the same point in the previous cycle from 1994 to 1996, non-farm payrolls grew at an average monthly rate of 244,000.
So the data reported by the government actually appear to prove the pessimists’ argument. ...
