Digging Into the August Jobs Report

By SBE Council at 1 September, 2023, 6:14 pm

by Raymond J. Keating –

The media and assorted experts are notorious for running with the topline numbers from the monthly employment report. But more often than not, the jobs report requires at least a little bit of digging. That’s definitely the case with the August employment report from the U.S. Bureau of Labor Statistics.

The topline information that will get widely reported, no doubt, is that nonfarm payroll employment increased by 188,000, and the unemployment rate rose from 3.5 percent to 3.8 percent. The reasons for this seemingly contradictory information largely will be ignored, never mind exploring why the unemployment rate increased.

So, let’s dig a little.

First, the increase in nonfarm payroll employment, which comes from the establishment survey, of 188,000 was respectable. But it doesn’t really tell us much more than the increase in employment among larger and/or more established businesses.

Second, the unemployment rate, which we derive from a different survey – the household survey – requires further exploration. Indeed, it always does because the unemployment rate can be misleading in terms of what’s actually happening with the underlying numbers that truly matter.

In August, unemployment actually did rise, and by a substantial 514,000. But employment also increased by 222,000. Hmm. Why was that? Because the labor force jumped by 736,000.

While the unemployment rate increased, that rise reflected welcome underlying labor market trends. That is, the labor force increased notably, and therefore, people moved off the sidelines and into the workforce, either getting jobs or seeking work. At the same time, employment increased.

So, the labor force participation rate increased from 62.6 percent in July to 62.8 percent in August. That was the highest level post-pandemic, but still short of where we were pre-pandemic (see the following chart).

Source: Federal Reserve Bank of St. Louis, FRED

Source: Federal Reserve Bank of St. Louis, FRED

However, at the same time, the labor force participation rate among the those in the key working age category of 25-54 years old registered 83.5 percent in August (where it was in June as well), which actually exceeds the pre-pandemic level of 83.1 percent hit in January 2020, and the immediate pre-Great Recession high mark of 83.4 percent in January 2007. (See above chart.) While still short of its all-time high of 84.6 percent hit in January 1999, this participation rate among 25-54 year olds when put alongside the overall labor force participation rate is another signal that U.S. population stagnation is a real and significant issue.

What’s needed? The U.S. requires a dramatic shift in immigration policies so that we, once again, become a welcoming nation to those who wish to come here to work and build businesses (by the way, immigrants have a much higher rate of entrepreneurship than do the native born). People from around the globe want to come here to pursue their dreams. Seems like a good idea to welcome and appreciate their efforts.

Raymond J. Keating is chief economist for the Small Business & Entrepreneurship Council. His latest books on the economy are The Weekly Economist: 52 Quick Reads to Help You Think Like an Economist and The Weekly Economist II: 52 More Quick Reads to Help You Think Like an Economist.