Lower Jobless Rate Points to U.S. Payroll Gains
The plunge in U.S. unemployment over the past two months indicates payrolls are about to pick up, or may already have, economists said.
The jobless rate unexpectedly dropped by 0.4 percentage point in January for a second month, bringing it down to 9 percent, the lowest level since April 2009, the Labor Department’s survey of households showed today in Washington. The survey showed employment climbed by 589,000, swamping the 36,000 increase in payrolls reported by the government’s separate poll of employers.
While there is evidence that the payroll count may have been depressed by bad weather, that influence alone isn’t enough to explain the gap, economists said. The household survey is best able to capture employment in new business and also takes into account Americans who work for themselves, two areas that may be accelerating as the world’s largest economy improves.
“The household survey has a history of leading payrolls in a recovery, so we’re setting ourselves up for a pretty strong improvement in payrolls,” said Stephen Stanley, chief economist at Pierpont Securities LLC in Stamford, Connecticut. “The numbers that look weak on the surface now will turn more robust by the March-April-May period. There’s ample evidence that firms are getting more comfortable about adding workers.”
The improvement underlying the drop in the unemployment rate is in sync with reports that show the economy is gathering momentum, which in turn would bolster job growth in coming months. Gains in income-tax receipts, the downward trend in claims for jobless benefits, and employment measures in surveys like the ones from the Institute for Supply Management corroborate the brighter outlook, said Dean Maki of Barclays Capital Inc.
“The unemployment rate has tended to be a more trustworthy measure over time,” said Maki, who is chief U.S. economist at Barclays in New York. “Job growth is likely stronger than recent payroll numbers have printed. The payrolls tend to undercount job losses in recessions, but also undercount job gains when the labor market picks up.”
In addition, the unemployment rate is subject to much smaller revisions over time than the payroll count, Maki said, making it a better gauge of long-term trends.
A case in point: Revisions added 40,000 jobs to the combined November and December payroll count, today’s report showed. The government also reduced employment by 378,000 workers for the 12 months ended in March after taking into account employer tax records that are only available with a lag.
One set of figures not subject to revision is the Treasury Department’s data on receipts from income taxes. And those numbers are giving a more positive signal, said Carl Riccadonna, a senior economist at Deutsche Bank Securities Inc. in New York.
The amount of money deducted from paychecks was up 5.2 percent at the start of this month from February 2010, according to Riccadonna’s calculations. That exceeds the Labor Department’s measure of weekly earnings, which showed a 2.5 percent year-over-year increase in January.
“That tells me the trend in payroll revisions is going to be higher,” Riccadonna said.
To be sure, the household survey is a more volatile, noisier series than the payroll survey, said Raymond Stone, managing director of Stone & McCarthy Research Associates in Skillman, New Jersey, so “we have to be careful interpreting it.” The government surveys about 60,000 households each month compared with about 400,000 worksites.
Nonetheless, “there is some justification in thinking that the household survey does run ahead of the payroll survey,” said Stone, whose 55,000 employment forecast was the closest among 85 economists surveyed by Bloomberg News.
“We are on a path to see stronger payroll growth in the future,” he said. “We are also on a path to see a still-lower unemployment rate. Most economists at the beginning of the year forecast we will end this year around 9 percent, but I think we will be substantially below that.”
Federal Reserve Chairman Ben S. Bernanke is among policy makers still concerned the pickup in growth is failing to spur hiring, one reason why central bankers have said they will carry on with a plan to pump another $600 billion into the economy.
“Until we see a sustained period of stronger job creation, we cannot consider the recovery to be truly established,” Bernanke said yesterday in a speech at the National Press Club in Washington. “It will be several years before the unemployment rate has returned to a more normal level.”
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