April 7, 2025
The unemployment rate rose 0.1% in March to 4.2% (4.152%) after rising 0.1% in February to 4.1% and declining 0.1% in January. The labor force rose by 232 thousand in March while employment rose by 201 thousand. As a result, the number of unemployed workers rose 31 thousand and the unemployment rate edged upwards by 0.1%. But payroll employment rose by 228 thousand in March versus the 201 thousand increase in civilian employment. In this case the employment gains are similar. In many months that is not the case. 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 4.2% should be relatively comforting. While the number of jobs being created (as measured by the change in payroll employment) is a acceptable, The labor market is weakening to some extent given uncertainty about the tariffs being imposed by the U.S. and other countries. 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 125 thousand in the past three months to 1,687 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 declined 0.1% in March to 7.9% after having jumped 0.5% in February to 8.0%. Full employment for this measure of unemployment is somewhere round the 8.0% mark.
Stephen Slifer
NumberNomics
Charleston, SC
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