Jobs Gap Defies Expectations

Report Jobs and Labor

Jobs Gap Defies Expectations

December 3, 2004 2 min read

Authors: Rea Hederman, Alison Acosta Fraser and Tim Kane

"Total employment in November grew by 483,000 to 140.3 million, and the employment-population ratio…edged up to 62.5 percent." - The Employment Situation Report, Friday, December 3, 2004, p. 1

Today's job report issued by the Bureau of Labor Statistics is still more evidence of an expanding economy, with job growth exceeding 100,000 for the fourth straight month. But that only counts payroll jobs, and non-payroll jobs grew by an extra third of a million.  President Bush will start his second term with an economic tailwind instead of the headwind that greeted him when he first took office. This matters for policy because a strong economy will enhance the opportunity for principled entitlement and tax reform, whereas a weak economy focuses all policymakers on crude stimulus policies.


  • 112,000 payroll jobs were added, almost all in the service sector. In 2004 so far, over 2 million net payroll jobs have been created.
  • The gap between payroll and household survey estimates grew vastly wider this month, reinforcing doubts about payroll sample quality issues and perhaps explaining why forecasters' expectations for payroll growth were not met.
  • The unemployment rate declined slightly to 5.4 percent, the sweet spot where it has held steady for most of late 2004.

Hoover Watch

The lament that George W. Bush will be the only President since Herbert Hoover to lose jobs is looking increasingly ill-founded, even if one uses the problematic payroll survey as the measure of jobs. Compared to January 2001, when Bush was sworn in, there are 313,000 fewer payroll jobs, but there are still two reports left before the first term closes. Payroll growth has averaged 185,455 jobs per month during 2004, which implies that Bush will have gained net jobs during his first term when all reports in and all revisions are complete.

Payroll-Household Divergence Continues

The real stunner in the jobs report is the gain of 483,000 jobs in the household survey in November alone. The payroll survey's sample quality problems make the household survey a better measure of long-run trends. For example, there has been a net gain of 2.4 million employed Americans on the President's watch, according the Census survey. The fact that there have never before been so many working Americans will probably escape mainstream media coverage, which continues to focus on the unreliable preliminary payroll numbers for headlines and whether or not payrolls met expectations. But expectations of forecasters are not relevant to the economy's real health, whereas the actual labor market remains impressive while setting new employment records.

Jobless Claims

Other labor signals also suggest continued expansion. One key example: The number of Americans receiving unemployment insurance continues to dwindle. Weekly initial jobless claims that are below 400,000 signal a strengthening economy. This week, the four-week moving average is 336,500, down slightly from October's final week and the lowest level in three and a half years. Continuing claims ended at 2.72 million in November, down from 3.3 million at the start of the year.

Economic Tailwinds Help Reform Efforts
The continuing good employment news is precisely what should be expected given the strong GDP growth rates for the past three years. Prospects are very bright for a booming economy in 2005, and the political implications of strong job growth, low inflation, and strong GDP growth in 2005 are profound. Reform of Social Security and the federal tax structure may never again have such a favorable environment.

The primary economic concern of all policymakers during the President's first term was ensuring a quick recovery from the 2001 recession. Now Congress should seize the opportunity to reform Social Security and America's burdensome tax code. These reforms will leave a legacy of economic solvency and prosperity for the President and the 109th Congress.


Alison Acosta Fraser is the Director of, the Thomas A. Roe Institute for Economic Policy Studies, Tim Kane is a Research Fellow, Center for Data Analysis and Rea Hederman is a Senior Policy Analyst in the Center for Data Analysis at The Heritage Foundation.


Rea Hederman

Former Director, Center for Data Analysis and Lazof Family Fellow

Alison Acosta Fraser

Former Senior Fellow and Director of Government Finance Programs

Tim Kane