March 7, 2025
The unemployment rate rose 0.1% in February to 4.1% after having declined 0.1% in January and having fallen 0.1% in December. The labor force fell 385 thousand in February while employment declined 588 thousand. As a result, the number of unemployed workers rose 203 thousand and the unemployment rate rose 0.1%. But payroll employment rose by 151 thousand in February which is in sharp contrast to the 588 thousand drop in civilian employment. What gives?
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 4.1% should be relatively comforting. While the number of jobs being created (as measured by the change in payroll employment) is a acceptable, there are signs of weakening in the labor market. The positions created in February were all part time positions as firms appear to be cautious about adding full time employees when the economic outlook is uncertain. At the same time, many workers indicated that they were seeking full time employment but could only find a part time position. Clearly the labor market is weakening. That nervousness on the part of employers could translate into job losses later in the year.
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 (discouraged workers). 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 increased 114 thousand in February to 1,700 thousand.
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To incorporate the impact of these marginally employed workers we should probably focus on a broader measure of unemployment which jumped 0.5% in February to 8.0% after having been unchanged in January at 7.5% and 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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