204,000 Jobs Added — What Shutdown?

by Patrick Brennan

In October, the U.S. economy added 204,000 jobs, according to this morning’s report from the Bureau of Labor Statistics. The release of the report was actually delayed by the fact that nonessential government functions (including, tragically, collecting economic data) were shut down over budget negotiations for the first two weeks of October — but that doesn’t seem to have mattered very much. The unemployment rate rose slightly, but the report has good news almost all around: The previous two months, when job growth seemed like it had slipped to a lower gear than it’d been earlier this year, were revised upward by 60,000 jobs in total, moving them from weak territory into the merely mediocre. Private payroll growth actually added up to 212,000 jobs, but government rolls shrank by 8,000 — with all of that coming at the federal level. But this wasn’t because of the shutdown: Most federal employees weren’t furloughed, period, and even those furloughed were not counted as laid off, the BLS notes.

Stocks and bonds have actually fallen on the news — while there’s good reason to believe the rise in asset prices over the past year or so reflect expectations of an improving economy, this strong report — when many were expecting a weak one — and the retroactive improvement of previous reports is making markets think the Fed is likely to tighten its policy and reduce its bond-buying purchases sooner than one might have thought yesterday.

As I wrote last month, the Federal Reserve’s key assessments of the economy, which tend to work from some of the best data available, didn’t make much of the economic effects of the shutdown, either. The White House’s Office of Management and Budget released a report yesterday indicating that it cut economic activity by $2 to 6 billion — amounting to around a whopping one-three-thousandth of the U.S. economy.

So much of the federal government has now been deemed “essential” that it really wasn’t inaccurate of conservative media outlets to refer to rather cheekily it as a “slimdown” or a “partial shutdown” (the latter a term the BLS actually uses in the report!) – so the direct economic effects of it were not negligible to the people who work for the federal government, or in places like northern Virginia, but they didn’t affect the national labor market. There is absolutely a cost to the financial uncertainty created by the budget fight — and by drawing close to the debt ceiling — but that’s nothing new, and has been afflicting the U.S. economy intermittently since 2009 or so, so you could see it as being priced in, almost.

You may have heard some places that another measure of unemployment showed huge job losses, and that labor-force participation has dropped to a historic low. Don’t take it too seriously. The BLS takes two measurements of the job market — the establishment survey, and the household survey. The establishment survey, which asks businesses about their employees, is what produces the headline number. The household survey, which polls households about their employment situation, is what produces the unemployment rate and the labor-force participation rate (since this can produce a denominator, basically, while asking employers can’t do that) — and that dropped dramatically in October, by 735,000, and the labor force shrunk by a similar amount. That’s because, understandably, people who were furloughed on October 12 by the federal government or by contractors reported that they were unemployed. That’s a temporary distortion, and what the overally payrolls number makes clear is that the shutdown didn’t much affect jobs growth besides the furloughs themselves. (There are other reasons these numbers can diverge widely, but they rarely do.) Why there was also a huge (almost identically sized) drop in labor-force participation — down to an all-time low of 62.8 percent — is unclear, because the household survey should count those on furlough (“temporary layoff,” the BLS calls it) as unemployed yet still in the labor force. It’s most likely due to some misclassifications, or coding errors — the BLS acknowledges there are big problems with the household survey this month.