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Thursday, October 4, 2012

Will Friday’s Unemployment Report Help Obama?

Given the results of last night’s presidential debate, the administration could use some good news in Friday’s unemployment report. A decline in the government's seasonally adjusted unemployment rate for September to 7.9% -- nearly matching its lowest level since President Barack Obama took office -- might be just what the president needs. While this seems unlikely based on Gallup's September polling both at mid-month and now for the month as a whole, it remains a distinct possibility.

The potential for such a surprise in the official unemployment rate for September supports Gallup’s argument that the best measure of the jobs situation in the U.S. and around the world is Payroll to Population (PTP). This measure has the major advantage of simplicity while simultaneously reflecting the economic strength of the nation. Gallup’s PTP measure is at 45.1% in September compared with 45.3% in August, meaning the U.S. real jobs situation was essentially unchanged in September.

Calculating the Unemployment Rate

Gallup's unadjusted unemployment rate fell to 7.9% in September -- down from 8.1% in August and the lowest monthly average since Gallup began measuring it in January 2010. Of course, part of the reason for this improvement has to do with temporary hiring for Halloween -- now a major sales event for the nation’s retailers -- and the Christmas holidays.

Last year, the government added 0.2 percentage points to September's unadjusted rate to account for this seasonal hiring of holiday employees. Applying that same 2011 seasonal adjustment to Gallup’s unadjusted unemployment rate produces an 8.1% adjusted rate for September 2012.

If the government's data show a 0.2-point decline in its unadjusted rate, as Gallup did, the BLS will report an unadjusted September rate of 8.0%. Adding a 0.2-point upward seasonal adjustment produces a seasonally adjusted unemployment rate of 8.2% for September.

Of course, the size of the workforce could play a big role in the government’s unemployment rate calculation, as it did in August. However, Gallup's monitoring of the unadjusted workforce participation rate -- the percentage of the workforce employed -- shows no change in September.

Gallup's monitoring of the unemployment situation suggests the odds seem pretty good that the government will report a seasonally adjusted unemployment rate of 8% or higher on Friday. The government’s numbers are based on a mid-month reference week for which Gallup found the same results as its monthly numbers for September. Gallup's results were close to the government's in August of this year and in September 2011. Further, it seems unlikely that the government will report another major drop in the size of the workforce after showing such a huge drop in August.

Still, ADP did show a slightly higher-than-consensus private-sector growth number Wednesday. Jobless claims fell substantially during the BLS reference week. Regardless, it is still possible that the government’s unadjusted decline in the unemployment rate will be larger than Gallup's, that its seasonal adjustment will be smaller for September, and/or that the government will show another decline in the size of the workforce. As a result, a 7.9% unemployment rate for September remains possible, if unlikely.


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