October Employment: Big Revisions

November 7, 2006 – In the data released last week, U.S. payroll employment was little changed in October, edging up by a mere 92K (Chart 1). This increase was too small to qualify as statistically significant at the 90% confidence level.[1]

Chart 1. Change in payroll employment. Monthly and 3-month moving average. January 2000 through October 2006.

Tempering the lack of October job growth, these data also included unusually large upward revisions in payroll jobs for both of the prior two months (Chart 2).

Chart 2. Average absolute value of revisions to payroll employment. 2001 through 2005, January through July 2006, August 2006 and September 2006.

Payrolls rose by a revised 148K in September. That’s 97K more job growth than the meager 51K September rise reported last month.

In addition, August payroll growth was revised to +230K. That’s 42K more job growth than last month’s report of a 188K August increase. Further, compared to the 128K gain reported two months ago, it now appears that the economy created 102K more jobs in August.

These revisions were roughly 2.5 to 3 times larger than the historical norms for the past five years.[2] The BLS said these changes were caused by the inclusion of new data from late surveys (the usual source). The overall survey response rates for September and August were “well within normal ranges”. The later surveys simply showed stronger payroll job growth than the earlier surveys for both of these months.

As revised, payroll employment growth averaged 157K per month for the three months through October (Chart 3). That’s not an outstandingly strong trend, but it is strong enough to suggest that the economy continued to grow at a moderate pace through October.

Chart 3. Change in payroll employment. 3-month moving average. January 1987 through October 2006.

The unemployment rate edged down by 0.2 percentage points to 4.4% in October (Chart 4). As of October, the unemployment rate was 0.6 percentage points below the Congressional Budget Office’s 5% estimate of its “full-employment” level, indicating a relatively “tight” labor supply.

Chart 4. The unemployment rate. Actual and 'full employment'. January 1987 through October 2006.

In contrast, October earnings growth continued on a relatively steady course. Average hourly earnings rose at a 4.4% annual rate in October – somewhat faster than September’s 2.9% increase, but still in line with the general trend of about 4% that has prevailed since the start of this year.

Suzanne Rizzo

Footnotes:

[1] According to the BLS, that would have required an increase of at least 99.1K.
[2] As calculated by the BLS for the historical period from January 2001 through July 2006, the mean absolute revision occurring between the first and second monthly payroll employment estimates was 33K (compared to 97K for September), and the mean absolute revision between the first and third estimates was 41K (compared to 102K for August).

Sources:

U.S. Department of Labor, Bureau of Labor Statistics (http://www.bls.gov) - payroll employment, the unemployment rate and average hourly earnings.
The Congressional Budget Office (http://www.cbo.gov) - the “full employment” unemployment rate (also known as the “NAIRU” or the “natural” rate of unemployment).
National Bureau of Economic Research (http://www.nber.org) - recession dates.