Last week we saw the unemployment rate post a significant drop from 8.1% to 7.8%. In addition this report was based on a gain of 873,000 jobs in September, the largest monthly increase in nearly 30 years. On the surface this appears to be excellent news, but looking more deeply the report was more mixed.
When the employment data is reported monthly, there are two surveys being used. One is a survey of households, which is how the unemployment rate is determined. The other report, which is more extensive, is based on a survey of businesses.
The business survey report showed an increase of 114,000 jobs in September, down modestly from the 142,000 gain in August. Gains of around 100,000 jobs per month are consistent with the slow growth economy we have been experiencing.
The jobs reported in the household survey tend to be more volatile on a month by month basis, in part because it is based on a smaller sample. While September witnessed a huge increase in jobs based on the household survey, July and August actually registered declines.
If the net jobs created are averaged for July through September, the household and business surveys show similar results. Other economic data for September showed an economy that was improving, but did not signify a major acceleration. For example surveys of purchasing managers showed moderate gains, but weekly jobless claims have not registered any meaningful changes.
The household survey includes people starting new businesses, which sometimes signifies turning points in the economy. However, for September I think the bulk of the gain was a statistical anomaly, rather than a meaningful turn in the economy.
The figures just discussed are national. However, for someone working or looking for a job, the local economy is more important. Unemployment in California has been coming down, but it still was 10.6% in August, and an even higher 11.2% in LA County.
Unemployment in the San Francisco area is lower than the state average, because of the technology industry. This explains the relatively higher salaries in San Francisco versus Los Angeles. Energy is benefitting North Dakota, with the lowest state unemployment rate at 3%. High oil prices are also having a positive impact on the economy in Bakersfield.
For those who own stocks, assuming a diversified portfolio, the national economy is more important than the local economy. In addition the global economy is significant, since an increasing share of U.S. corporate earnings are earned overseas.
On the surface seeing the national unemployment rate dip below 8% was a pleasant surprise. However, I think we would need to see several more months of data to confirm a real improvement in the economy. For now it appears the economy is still in its slow growth pattern.
.
