- The Washington Times - Saturday, December 11, 2004

The preliminary count of November U.S. nonfarm payrolls posted jobs up a modest 112,000, with most of the gain in the service sector.

The November job number will be revised next month and again a month later. Based on revisions over the last year, the chances are 8 in 10 the final increase will be stronger.

Although the October job gain was adjusted slightly downward in its first monthly revision, it still came in at more than 300,000 — a spectacular performance reflecting in part the rebuilding after the August and September hurricanes.

So far this year, payroll jobs are up a sturdy 1.9 million, and the underlying trend remains solid. Certainly the numbers provide no reason to expect the Federal Open Market Committee will not raise the federal funds rate again at its Dec. 14 meeting.

Total civilian employment, a more comprehensive measure than nonfarm payroll jobs, surged last month, by 483,000, as the unemployment rate ticked down a tenth to 5.4 percent.

Primarily because the civilian employment number is based on a household survey smaller than the employer payroll survey, most economists give more weight to the latter. Unfortunately, the media take this to an extreme and largely ignore the civilian employment number each month. Both figures should be taken into account in assessing the job situation.

Since its cyclical low in August 2003, nonfarm payroll jobs have increased by 2.3 million, with total civilian employment rising even faster, exceeding normal population additions to the labor force. However, the rate of labor force participation, while up last month, remains well below its pre-recession peak.

Looking beneath the overall job totals for this year, a significant compositional shift has taken place. From March to August, self-employment and agricultural employment, which come from the household survey and are not included in the payroll job figures, rose by 431,000 and 157,000 respectively. (A frequent and not illegitimate complaint from economists at the time was that job growth as measured by the payroll survey was understated.) Payroll jobs in that same five-month period rose by slightly over 900,000. Taking into account the 588,000 employment gain in the two uncounted sectors indicates a stronger job picture than generally reported.

Since August, total payroll and civilian employment have grown comparably, by somewhat more than a half-million. Unlike in prior months, however, self-employment and farm jobs in the last three months together declined by more than 200,000, while nonfarm wage and salary employment as measured by the household survey rose a hefty 868,000. This increase was over 300,000 more than the rise in nonfarm jobs as measured by the payroll survey, a significant difference.

Thus, the major sectors not counted in the payroll survey have turned from strong to weak, while the labor market has continued expanding. The nonfarm wage and salary component of the household survey has accelerated in recent months, expanding faster than the rise in nonfarm payroll jobs. Conversely, in spring and summer months, the payroll data look stronger than household nonfarm wage and salary employment.

Since the year began, the increase in household-measured nonfarm wage employment has closely tracked payroll jobs, the former rising 1.8 million and the latter 1.9 million. In contrast, earlier in the recovery the two counts diverged, with civilian employment rising while payroll employment declined. This year’s data suggest the discrepancies between the two series may be dissipating and their trends coming back into line. If so, perhaps the household data will regain credibility and be given the attention they are due.

The recent compositional shift away from self-employment toward wage and salary jobs in the nonfarm economy is not necessarily bad news. Historically, in business cycle expansions the wage sector has been the traditional source of stable job growth. The data may be saying workers forced into lower-paid self-employment during the last recession and the extended job weakness following the trough are now returning to more secure wage and salary jobs.

There are reinforcing clues from other data suggesting the traditional job market may be absorbing more workers previously pushed to the margins. From August to October, more than 60 percent of the rise in professional and business service jobs was in temporary help. Last month, the proportion fell below one-third. Also, involuntary part-time unemployment and estimated “hidden” unemployed outside the labor force declined last month, more evidence of a firming job market.

Alfred Tella is former Georgetown University research professor of economics.

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