The November
employment report -- continuing the string of good economic news --
shows increasingly strong economic growth with low inflation and
remarkably high worker productivity.
The Bureau of
Labor Statistics reports:
- The unemployment
rate declined for the second straight month, dropping this past
month from 6.0 percent to 5.9 percent,
- The job growth
trend continued with October's numbers revised upward to 137,000
new jobs reinforcing indications of a growing recovery. The number
of new jobs in November, 57,000, will probably be revised upwards
like the previous three months.
Overall, economic
indicators have been very robust and paint an encouraging
picture.
Productivity
The productivity
growth of the third quarter was outstanding at 9.4 percent, the
most growth in twenty years. More significant is that there has
been job growth even with record productivity growth. Productivity
growth this high is far above normal business activity, however as
the productivity gains ease, continued job growth will follow as
these numbers indicate strong demand. Productivity is key to
increasing overall wealth because it allows goods to be produced in
a more efficient manner.
Manufacturing
There is
continuing good news coming from the manufacturing sector.
Manufacturing is having some of its best months in 20 years and
demand for new goods is increasing. The downturn in manufacturing
jobs slowed dramatically over the past months indicating that job
losses in that sector have peaked and are declining.
The Commerce
Department gave manufacturing sector more good news by announcing
that new factory orders were up 2.2 percent, the highest increase
in fifteen months and the fifth increase in the last six months.
Business inventories continued to decline as well indicating that
demand is outstripping output. This increase in demand of
manufacturing goods points to a growth in manufacturing jobs in the
near feature.
Payroll & Household Survey
Comparison
The November
employment report again highlighted differences between the payroll
survey and the household survey. The payroll survey contained
moderate job growth while the household survey featured another
drop in the unemployment rate. Additionally the household survey
showed a much more substantial growth in jobs than the payroll
survey, which continues a trend of large differences that labor
economists have been tracking for over a year
While there are
many differences between the payroll or establishment survey and
the household survey (both conducted for the Bureau of Labor
Statistics under contract by the Census Bureau), the two surveys
generally have tracked each other over the last fifty years have
shown the same trends in job gains or losses. Thus the widening gap
between the two surveys has been a bit puzzling especially since
over the last decade the payroll survey has shown more employment
growth than the household survey.
Both surveys are
used to estimate employment with some variation in their purpose.
The establishment survey seeks to measure not just employment but
also hours and wages. The household survey measures the
demographics of employees as well as their working
status.
There are other
structural differences such as what constitutes employment and the
coverage of the survey. The household survey covers the prison
population and agricultural workers while the establishment survey
does not. The household survey is also more likely to count
self-employed workers than the establishment survey.
Small Business and
Self-Employment Growth
While the payroll
survey has generally been viewed as more accurate in counting the
overall employment, there is strong evidence that the payroll
survey's accuracy diminishes in periods of economic transition. Hence it tends to
overstate employment in downturns and understates employment in
upturns.
Economist James
Smith of the University of North Carolina says, "When
you're at a turning point in the economy, you get a lot of new
business startups. … They don't show up in the payroll data
for about a year".
A primary failing of
the payroll survey is its inability to estimate self-employed
workers. Some reports show that the number of self-employed workers
could have increased by over 400,000 in 2003. The income of the
self-employed has also seen a sharp increase indicating that these
workers are earning income.
On December 1, a
Wall Street Journal stated, "The Commerce Department
reported Wednesday that proprietor's income, excluding the farm
sector, was up 8.6% from a year earlier. By contrast, the wages and
salaries of individuals on corporate payrolls were up just 2.3%.
While business-formation data is spotty, it is clear that
individual business owners are seeing strong growth in their own
income."
Continued
Upward Revisions
The payroll
survey's inability to capture the rise of the self-employed is due
to its structure. The BLS interviews existing firms while the
Census Bureau interviews workers directly. As a result, Census can
capture job growth sparked by job hiring in small businesses better
than the payroll survey can. Haseeb Ahmed of Economy.com believes
that the payroll survey's undercounting of small business
employment will lead to an upward revision of the payroll survey
employment numbers, similar to the revision in the early 1990's
when revisions to the payroll survey doubled the number of job
gains.
Both surveys
measure the employment status of the U.S. economy. However, both
surveys have their flaws and at times present a picture that is
wildly divergent from the real economic situation. With the growth
of small business and the self-employed, it is quite likely the
payroll survey will be revised upward erasing part of the
divergence with the household survey.