Who Needs the Jobs Report?

Matthew C. Klein writes for Bloomberg View about the economy and financial markets. He previously wrote for the Economist magazine and its economics blog, Free Exchange.
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The first Friday of the month is a special day for economics journalists and traders. That's when the U.S. Bureau of Labor Statistics normally releases its jobs report. While this always mattered to people trying to assess the state of the economy, uncertainty about the Federal Reserve's plans to raise interest rates (it says its actions are "data-dependent") has made the release even more important.

There was no jobs report today, because the government shutdown has prevented the boffins at the BLS from running the numbers. People who get paid to write about jobs reports and markets have reason to be upset about this, but the hiatus presents a good opportunity to take a step back and reflect on the downsides of our obsession with monthly data.

The number of Americans working usually changes by about 0.15 percent a month. That is a tiny number subject to large margins of error, which is why the numbers areregularly revised by more than 50 percent in either direction after a few months. Making matters worse is the fact that quirks in the BLS's seasonal adjustment algorithm have added even more noise to the data since 2009. Together, the average monthly error over the past four years has been about as big as the average reported monthly change.

You might think that these errors would compel analysts to treat initial data releases with a large grain of salt. Instead, traders and journalists prefer to focus on the truly tiny differences between the expected monthly change and the actual monthly change. To put that in perspective, many people get worked up over a number that represents 0.001 percent of the BLS's estimate of total employment -- a number that is essentially meaningless.

Annual changes are more useful than monthly changes for understanding the pace of growth, but those data don't tell us how far we are from full employment. Looking at the raw numberof people with jobs is better, although it is hard to know how many people should be working in the absence of information about population growth and aging. This is why the BLS conducts a separate survey to find the unemployment rate.

Unfortunately, this too has been plagued by methodological problems since the crisis. Millions of people in their prime working years have dropped out of the labor force, often deciding to enroll in government disability benefit programs after failing to find a job. This has depressed the official measure of the unemployment rate by perhaps as much as2 percentage points. (On the other hand, some workers have deferred retirement because they can no longer afford it, which is why the participation rate has soared for elderly people.)

Instead of obsessing over insignificant monthly changes, we would be better off remembering two salient facts: The recovery has been slow and it has been consistent. If you believe the relatively optimistic analysts at the Federal Reserve Bank of Chicago, we won't return to full employment before sometime in 2017 or 2018. That's a catastrophe. It's also all that really matters.

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