Feb 1, 2019

Groundhog Day Jobs Report: Economy Fails to See the Shadow of Government Shutdown

The January 2019 Jobs Report

The longest government shutdown in history had the expected effect on last month’s jobs numbers: the number of workers on temporary layoff increased, and the unemployment rate was correspondingly higher as a result. The increase seems to have been muted by some furloughed workers finding short-term working arrangements because there was a 560,000 (19 percent) month-over-month increase in the number of workers who said they were working part-time because of “slack work or business conditions.” Temporary jobs, like driving for Uber, are a traditional safe haven for workers who are in-between jobs or experience other momentary downturns in income.

(Note: See the end of this article for a brief explanation of how the government shutdown and furloughed workers were factored into the BLS estimates).

Job Growth Surges in January

But the completely unexpected result is a continued surge in job creation, 304,000 (almost double what was expected), showing that the broader economy wasn’t substantially affected by the government shutdown, at least in the short term. However, surveys of consumer sentiment and business confidence have been trending lower in light of restrictions on international trade, uncertainty in financial markets, and political turmoil, reminding us that the economy is not impervious to government actions.

Employment

Businesses added 304,000 jobs in January. The number of jobs reported from the business survey in November increased by 20,000 (from 176,000 to 196,000) while the December survey was revised downward by 90,000 jobs (from 312,000 to 222,000). So last month’s gangbuster estimates were too high, and the same could be always true for this month’s numbers.

The values that are initially reported are estimates and are subject to these revisions due to late respondents to the business survey. In the case of December’s revision, it appears that BLS economists overestimated the anticipated contribution of the slow survey responders. Such is the risk of working with economic data in real-time.

Additionally, see this illustrative tweet by Ernie Tedeschi regarding how the labor force participation rate (adjusted for demographics) has returned to pre-Great Recession levels. The demographically-adjusted employment-to-population ratio has already exceeded the pre-Great Recession mark.

Unemployment

The number of people counted as officially unemployed rose by 241,000 (a 3.8 percent increase from last month), of which 73 percent (175,000) was attributable to the increase in workers on temporary layoff. The headline unemployment rate (U-3) rose slightly to 4.0 percent.

The number of people who were working part-time for economic reasons (like an inability to find full-time work, seasonal declines in demand, unfavorable business conditions, or government shutdown-related furlough) rose by 490,000 to 5.15 million, which is 24.6 percent of all part-time workers.

The number of people who wanted a job but weren’t actively seeking employment fell by 73,000 to 5.25 million. But the overall increase in unemployment led the comprehensive jobless rate to increase slightly to 7.0 percent.

The general duration of unemployment fell, influenced by the momentary increase of furloughed employees caused by the government shutdown. As a result the average length of unemployment for the people currently unemployed isn’t an accurate number to report this month. It’s better to omit those who have been unemployed less than 5 weeks from the picture to get a better sense of the broader economy. The number of people who were unemployed 5 to 14 weeks and 15 to 26 weeks held steady at 2.0 million and 0.9 million, while there was a marginal decrease (54,000; a four percent drop) in those who have been unemployed for 27 weeks and over.

Wages

Annual wage growth (for hourly wages) rose slightly last month to 3.2 percent, while weekly earnings grew 3.5 percent over the previous year (compared to last month’s 3.2 and 3.2 percent). Wages seem to be ever so slightly rising.

Recent upticks in wage growth might be a hint that the labor market is finally starting to see the effect of a lack of available workers, but it might also reflect other factors, like increasing inflation or recent increases in the minimum wage in many states and cities. It’s really too soon to tell.

There’s also still over 6 million workers actively seeking employment, along with more than 5 million who say they want a job (but aren’t actively looking for one). As of the end of November there were more job openings (6.9 million) than job-seekers, but that has been the case since April 2018 and we haven’t yet seen strong wage growth kick in as a result. It’s possible that workers are pursuing/employers are providing more workplace amenities and flexibility as an alternative to higher wages. This would mean that total compensation is increasing, even if the effect isn’t seen in direct earnings.

Quick Statistics from the January 2019 BLS Jobs Report

Headline Employment Statistics

  • Total nonfarm payroll employment increased by 304,000 jobs.
  • The labor force participation rate increased by 0.1 percentage points to 63.2 percent.
  • The headline unemployment rate (U-3) increased by 0.1 percentage points to 4.0 percent.

Unemployment Statistics

  • The mid- to long-term unemployment rate (15 weeks or longer; U-1) held steady at 1.3 percent.
  • The discouraged worker unemployment rate (U-4) increased by 0.2 percentage points to 4.3 percent.
  • The comprehensive jobless rate (U-5b) increased by 0.1 percentage points to 7.0 percent.
  • There was a sharp increase in the U-6 unemployment rate (0.5 percentage point increase to 8.1 percent), which likely reflects furloughed government employees working a temporary job to make ends meet (the U-6 unemployment rate includes part-time workers who would prefer to be working full-time).

Deeper Unemployment Statistics

  • Long-term unemployed workers (27 weeks or longer) decreased by 54,000 to 1,252,000; the proportion of long-term unemployed workers fell due to the furloughed employees from the federal government shutdown, dropping to 19.3 percent of those who are unemployed.
  • The number of people who wanted to work full time, but who could only find part-time work for economic reasons increased because of the furloughed government workers, rising by 490,000 to 5.15 million, which was 24.6 percent of all part-time workers.

Wages

  • Average hourly earnings rose by 3.2 percent over the previous 12 months.
  • Average weekly earnings rose by 3.5 percent over the previous 12 months.

A Note on Employment Counts During the Government Shutdown

The monthly jobs report contains information from two government surveys, a household-focused survey and survey targeted toward business establishments. The Household Survey is used, among other things, to estimate the current unemployment rate, while the “jobs created/lost” estimate is provided by the Establishment Survey. The two surveys are not balanced against each other (which is appropriate because they measure different things) which  sometimes can result in odd results, like this month’s jobs report which shows 304,000 new jobs were created while the unemployment rate also increased.

The fact that many government workers were furloughed makes this even more unusual. The Household Survey would count a furloughed government employee as unemployed because they were on a temporary layoff, while the Establishment Survey would count that same worker as employed because of the fact that Congress passed legislation ensuring that furloughed employees would receive back pay after the shutdown ended. As a result, the Establishment Survey did not count the temporary layoffs as lost jobs, whereas the Household Survey did.

This BLS created a helpful table (link here) to further explain the situation.

Photo credit: John Moore/Getty Images

Support Mercatus

Your support allows us to continue bridging the gap between academic ideas and real-world policy solutions.Donate