Friday, April 6, 2012
Did private non farm employment grow in March by only 121K (per the establishment survey), or by a very impressive 318K (per the household survey)? Take your pick: no one really knows which one is right, even though they paint dramatically different pictures of how strong the economy currently is.
In the 30+ years during which I have been following these two monthly surveys, there have been many times when they have diverged. Over time they tell the same story, but over shorter periods of a few months or even a few years, they can tell different stories. One shorthand way of resolving the problem of a divergence is to simply split the difference, since the truth is likely to be somewhere in the middle. Doing that for March gives you a private sector payroll gain of 225K, which is right around where expectations were, and which is also consistent with what we've seen in the past few months. I don't see any reason to think that the unexpected slowdown in jobs growth that surfaced in the establishment number reflects any actual slowdown in the economy; the economy never turns on a dime without there being a number of indicators suggesting that something big is going on.
If markets are going to post a big reaction to this number, then they will be mistaken. The truth is most likely that there wasn't any jobs slowdown in March at all.
Looking at the chart above suggests another way of resolving this divergence problem. Note that the growth of private sector jobs from early 2010 through just a few months ago according to the household survey (red line) was slower than the growth according to the establishment survey (blue line). In the past two months the household survey has made up for that lagging performance by posting growth of 740K jobs. Since early 2010, the household survey now reports the addition of 4.4 million jobs (164K per month on average), while the payroll survey reports just under 4.1 million (150K per month on average). That's pretty close, and it's certainly good enough for government work.
I note also that this recovery has been unusual in the sense that, until recently, the household survey was showing weaker jobs growth than the establishment survey, when the typical pattern has been that the household survey tends to report faster growth coming out of a recession. That happens because the household survey is better at picking up new jobs that are being created by new, smaller companies that are not included in the establishment survey. This recovery was an anomaly, but now we seem to be back on track since the household survey is once again in the lead.
Much ado about nothing: the economy is most likely still growing at a 3-4% pace.
Posted by Scott Grannis at 8:48 AM