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Wednesday, July 3, 2013

June Jobs No Better Than a Year Ago

Recent history shows the government's jobs report is not only unpredictable, but also subject to considerable Wall Street spin. In this way, May's weak numbers showing the unemployment rate increasing to 7.6% became a "Goldilocks" report.

While the same type of spin may be applied to the government's June report, to be released on Friday, Gallup's private-sector monitoring of the jobs situation shows no improvement in full-time Payroll to Population (P2P) between June 2013 (44.8%) and June 2012 (44.9%). Further, Gallup's workforce participation rate suggests more Americans are joining the workforce this year, and the government is not picking up the increases, meaning the unemployment situation may be much worse than now recognized.

One reason Gallup finds no improvement in the employment situation is the workforce participation rate -- the percentage of Americans in the workforce. June's 68.5% matches the highest participation rate Gallup has seen since continuous monitoring began in January 2010. Gallup's participation rate surged to 68.5% in April 2013 from 67.7% in March. The metric has remained at this high level for the past three months, and exceeds levels seen at this time in 2012 throughout the second quarter.

The government reported its lowest unadjusted participation rate of the year in March and April at 63.1%. This increased in May to 63.5%, trailing the surge in participation Gallup picked up in April. The government's participation rate is lower than Gallup's for a variety of methodological reasons, and these differences may also explain why the BLS participation rates continue to trail those seen in 2012 on a monthly basis.

Seasonally adjusting the participation rates, government reports show slightly higher numbers. These adjustments also reduce the change in the participation rate -- for example, May's adjusted rate of 63.4% is up only marginally from the 63.3% of April.

Private Sector Monitoring Is Better

Gallup's P2P measure tells us that the slow U.S. economy of 2013 has barely created enough jobs to keep up with population growth over the past year and has not produced enough jobs to get Americans back to work. Seemingly good news for those hoping the Fed will continue pouring money into the economy; likely bad news for those hoping for a stronger economy in the second half of 2013.

Further, the increase in the participation rate suggests the real job situation is getting worse as Americans who had dropped out of the workforce seek to re-enter. This is consistent with the high levels of economic confidence Gallup has been seeing and the general increase in optimism about housing.

Still, jobs are essential to economic growth, and the key to improvements in consumer spending and housing, particularly, when interest rates are increasing and the markets are volatile. In this regard, the government data on jobs leaves a lot to be desired in both face-validity and consistency. Gallup's P2P provides a private sector alternative -- based on 30,000 monthly phone interviews having the best possible survey design. Maybe the time has come for the markets and policymakers to recognize that private sector efforts like the P2P may be just as accurate -- if not more accurate -- than the government's measures.


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