Jobs Report - Big Number and Growing Employment Ratio
The jobs report was released yesterday and the market loved it, not only for the lower than expected wage inflation but also the large number of new jobs - 313,000 PLUS an additional 54,000 from previous months' upward revisions. That is very solid job growth, though we have seen this growth before as demonstrated by this graph - separating the total jobs between government and private industry.
The secondary statistic getting attention was the fact that the unemployment rate remained flat at the very low 4.1% on the back of this strong jobs growth. There are two main reasons when the normal relationship between number of jobs and unemployment rate is inconsistent.
1) The jobs report actually uses two sources - the 'number of jobs' statistic comes from the "Establishment Survey" (i.e. ask large employers - not small - how many they hired) and the 'unemployment rate' statistic comes from the "Household Survey" (i.e. call people and ask if they are looking for or have a job).
2) The unemployment rate is a percentage of people not working, but only relative to the number of people looking for a job (based on Household Survey). If there are no new jobs created during a month but the number of people looking for a job increased, that would raise the unemployment rate. But if the number of new jobs was offset by a similar number of new people looking, the unemployment rate will be flat from the previous month.
This past month both factors showed a favorable trend, with the second factor explaining the flat unemployment rate.
- The "Household Survey" actually showed the number of new jobs at 785,000 vs. the 313,000 from "Establishment". There is typically a difference in these two surveys (January was 200,000 Establishment and 230,000 Household) but this past month was particularly large.
- While the new jobs from the Household was 785,000, there was also an additional 806,000 people looking for a job that weren't last month. This caused the unemployment ratio to remain steady at 4.1%.
Another ratio not commonly cited that had a favorable reading despite the flat unemployment rate was the employment ratio. That jumped up a strong 0.3% this month. For those craving the actual numbers I include the relevant table from Friday's report at the bottom of this blog post. Let's first let a picture tell us a thousand words using the past two-years to see the blip up and the last 70 years for context. Happy job hunting!
Posted by Kirk, a fee-only financial advisor who looks at your complete financial picture through the lens of a multi-disciplined, credentialed professional. www.pvwealthmgt.com