More to the the Story on September’s Employment Data

By at 8 October, 2021, 11:57 am

by Raymond J. Keating –

Why are people satisfied with half of the story? This question pops into my head early every month with the new employment report from the U.S. Bureau of Labor Statistics.

As I have noted before, the monthly employment report actually is two reports, or at least based on two separate surveys. The BLS itself notes this:

“This news release presents statistics from two monthly surveys. The household survey measures labor force status, including unemployment, by demographic characteristics. The establishment survey measures nonfarm employment, hours, and earnings by industry.”

This apparently confuses many to the point that the media and many market experts point to the change in payrolls from the establishment survey, and the unemployment rate from the household survey, without noting that these two data points come from different surveys, and without noting other data points that tell a more complete story on jobs for the month.

So, let’s do our part in trying to present a fuller picture of the jobs story for September 2021.

The establishment survey estimated that nonfarm employment increased by 194,000. That’s considered lackluster given the number of jobs we still need to regain given the pandemic economy losses.

Meanwhile, the household survey showed a large drop in the unemployment rate – from 5.2 percent in August to 4.8 percent in September. The unemployment rate, however, should not be taken at face value. The underlying numbers must be examined, which are more important anyway.

The household survey – which, by the way, better captures startup and small business activity – pointed to an employment gain of 526,000 in September, far more than the payroll survey. However, at the same time, the labor force in September actually shrank by 183,000. That means that the decline in the unemployment rate in September was partially positive (the gain in employment) and partially a negative (the decline in the labor force).

As for more valuable data points beyond the unemployment rate, the employment-population ratio improved from 58.5 percent in August to 58.7 percent in September. But at the same time, the labor force participation rate declined slightly, from 61.7 percent in August to 61.6 percent in September.

Finally, when talking heads get chatting about the state of the labor market, they’ll judge how tight the market is by the unemployment rate. But that misses too much, including the number of people not in the labor force. Again, looking at the labor force participation rate and employment-population ratio is more informative.

Based on the charts above, we can see how many businesses can be challenged not by a tight labor market necessarily, but by a labor shortage. It’s not about not having enough people to work – well, to a certain point – but more about people apparently not willing to work. Neither the labor force participation rate nor the employment-population ratio – total and for those in prime working years – have climbed back to where they were prior to the pandemic, nor to where they were prior to the Great Recession. Much work remains.

Left alone, the economy and jobs market should continue to improve, but policymakers are creating serious and completely unnecessary risks and uncertainties with threats of major tax and regulatory increases, for example. But what’s truly needed are policies that will encourage economic and job growth in the near term and over the long haul, including substantial and permanent tax and regulatory relief, free trade, government spending restraint, sound money, and immigration reforms that welcome entrepreneurs and workers.

Raymond J. Keating is chief economist for the Small Business & Entrepreneurship Council.


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