February 7, 2025
The unemployment rate declined 0.1% in January to 4.0% after declining 0.1% in December. The Bureau of Labor Statistics said that after adjustment for revision to population, civilian employment rose 234 thousand in January. This compares to an increase in payroll employment of 143 thousand.
How come the two estimates of employment are different? First, the two are figures are derived from separate data streams. The payroll number is calculated from employment numbers reported by a large number of employers across all industries. Employment for the unemployment rate calculation is derived from knocking on doors and asking people if they have a job. It is known as the household survey. It tends to be more volatile than the payroll employment data. One conceptual difference is that the household survey includes people who are self-employed which would not be captured in the establishment survey. In the end, there is always monthly noise between the two series. Over time the two surveys seem to show roughly comparable gains in employment.
The Fed considers full employment to be 4.2% so its current level of 4.0% should be comforting. The labor market appears to be relatively stable.
While the official rate is the most widely used, the reality is that the official rate can be misleading because it does not include “underemployed” workers. There are two types of “underemployed” workers. First, there are people who have unsuccessfully sought employment for so long that they have given up looking for a job. Second, are those workers that currently have a part time position but indicate that they would like full time employment. The total of these two types of underemployed workers are “marginally attached” to the labor force. The number of these workers has been fairly steady in recent months.
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To incorporate the impact of these marginally employed workers we should probably focus on a broader measure of unemployment which was unchanged in January at 7.5% after having declined 0.2% in December Full employment for this measure of unemployment is somewhere round the 8.0% mark.
Stephen Slifer
NumberNomics
Charleston, SC
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