September 6, 2024
The unemployment rate fell 0.1% in August to 4.2% after having risen 0.2% in July, 0.1% in June, and 0.1% in May. In August the labor force rose by 120 thousand.. Employment increased 168 thousand. As a result, the number of unemployed workers fell by 48 thousand and the unemployment rate dropped 0.1% to 4.2%. In contrast, payroll employment rose by 142 thousand in compared to the 168 thousand increase in civilian employment.
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% is not too troubling thus far. However, both the employment data and the hours worked statistics suggest that the labor market continues to weaken. In the wake of this report it is clear why the Fed indicated it is poised to cut the funds rate in September. The data are on the soft side and the Fed should respond accordingly. The market is expecting three rate cuts by yearend. We concur.
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 risen somewhat in recent months as some people appear to have gotten a part-time job but would like a full-time position..
To incorporate the impact of these workers who are marginally attached to the labor force, we should probably be focusing on the broader measure of unemployment rose which rose 0.1% in August to 7.9% after having climbed 0.4% in July. Full employment for this measure of unemployment is somewhere around the 8.0% mark.
We look for GDP growth of 1.0% in the third quarter followed by 1.7% growth in the fourth quarter.
Stephen Slifer
NumberNomics
Charleston, SC
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