Forty-three consecutive months. That’s how long the U.S. unemployment rate hovered above 8%. The U.S. economy hasn’t had unemployment this persistently high since the Great Depression.
The good news—trumpeted in the September Bureau of Labor Statistics (BLS) Employment Situation Summary—is that the overall unemployment rate finally dipped below 8%—to 7.8%—in September from 8.1% the previous month.
But this report sent mixed signals about labor market health. Such conflict sometimes arises because the BLS uses two surveys to compile its monthly labor market report.
The unemployment rate derives from a survey of households. That “household survey,” which asks which members of the household are working, showed that the drop in the unemployment rate occurred because the economy added 873,000 jobs in September.
In contrast, the “establishment survey”—a survey of employers who are asked how many workers they have—found that only 114,000 jobs were added during the month.
Economists point out it’s not unusual for the two surveys to send conflicting signals. Differences may arise, for example, because self-employed people are counted in the household survey but not in the establishment survey. And people with two jobs are counted twice in the employer survey.
A year ago, the establishment data looked rosier than the household data, but now the reverse is true. The important thing to remember is that over the long haul the differences tend to even out.
Indeed, during the past two years the two reports have been virtually identical, each reflecting an addition of roughly 3.5 million jobs/workers. Regardless of which survey you focus on, labor markets clearly are improving. But in general, both reports show the pace has been painfully slow.
And, most important, both suggest we have a long way to go before the labor markets have completely healed.
There were 138 million people employed in the nonfarm sector (the combined private and government sectors) at the start of the economic downturn in December 2007, according to the BLS. That total fell precipitously as the economic crisis grew, eventually bottoming out at 129.2 million employed people by February 2010—a decline of roughly nine million jobs in 26 months.
Since that time, the economy has added jobs slowly but steadily. The BLS reports that employment now stands at 133.2 million, an increase of four million since the February 2010 trough.
That’s a hopeful increase, but total employment is five million lower than it was at the start of the downturn. So what does the future hold on the employment front?
Unfortunately, the outlook isn’t exactly rosy. During the past six months the economy added, on average, just 106,000 jobs per month. That’s far less than the minimum 175,000 monthly addition needed to reduce the unemployment rate in the face of population and labor-force growth.
Using the actual monthly average addition of 106,000 new jobs during the past six months and projecting that average forward, the U.S. economy probably won’t regain its pre-recession employment level of 138 million for quite some time.
Specifically, adding 106,000 jobs per month would result in 138 million employed people March 2016—3.5 years down the road. Of course, at that point the unemployment rate will remain elevated because the population will be growing.
Admittedly, that’s one simplistic way of looking at the future. What actually will happen is difficult to say. But it’s certainly true that the nature and severity of the recession virtually guaranteed a slow recovery.
Further, while we’ve seen hopeful signs recently in increased demand for housing and autos, most observers expect continued uncertainty and volatility brought on by geopolitical unrest and the threat of rising oil prices, a do-nothing Congress staring at a “fiscal cliff,” and economic deterioration in the Eurozone.
Given that backdrop, it seems reasonable to expect employers to be cautious in hiring. And that suggests more steady (but slow) labor market improvement.