Last month, the government surprised almost everyone by reporting that the seasonally adjusted unemployment rate fell to 7.8% in September. Now, Gallup Daily tracking data suggest the government could report another decline in October, as opposed to the consensus forecast for a slight increase to 7.9%. Gallup’s adjusted unemployment rate fell to 7.5% in October based on more than 30,000 monthly interviews completed through 30 days ending Oct. 28. If the government’s numbers follow a similar pattern, the BLS will report a 7.4% unemployment rate for October.
One reason the unemployment rate might show another decline has to do with a relatively recent surge in the hiring of part-time workers. The percentage of part-time workers increased to 19.2% of the workforce in October from 18.5% in September and 18.0% in August. This makes sense in the context of highly uncertain employers adding part-time help instead of hiring full time positions. However, it is not necessarily an indication of an improving U.S. economy.
Another reason may have to do with the composition of the recent GDP estimate. It appears that GDP for the third quarter may have benefited from surprisingly strong defense and other government spending. It seems reasonable to assume that this added spending may be translating into some additional jobs in October. Further, Gallup’s data suggest the workforce may not be growing in October -- maintaining today’s surprisingly low participation rate.
It may turn out that the government’s seasonally unadjusted unemployment rate will continue to decline when reported this Friday. Although a plummeting unemployment rate is hard to reconcile with an economy growing at 2% or less, not to mention Gallup’s declining job creation measure, it may be that the combination of a shrinking workforce and surge in part-time employees can make that happen over a period of months. Regardless, this does not mean that such a trend is a positive indicator of real economic performance, at least at this point in time.