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Decimal Digest
10 Aug 2012

Bumper US Employment
Friday’s US employment data may go down in the history as the economic report that generated the most controversy. Although we have no reason to trust or distrust Jack Welch’s tweet that White House doctored this report, nonetheless we find this report very amusing.

Table 1: Stylized Outperformance of Job Growth over Civilian Labor Force Growth in ’000

Source: BLS, DPA adjustments1

The above table shows the difference between number of jobs created in a month and growth in civilian labor force in the same month. This table shows a positive figure if:

    1. The number of jobs created exceed the growth in civilian labor force AND
    2. The number of jobs created is a positive figure for the month AND
    3. The growth in civilian labor force is a positive figure

If any of the above conditions are not met, the above table shows zero. In other words, this table shows months in which unemployment fell for a good reason. Let us explain what we mean by good reason. Unemployment can fall under three distinct conditions:

    1. Growth in number of people with jobs exceeds the positive growth in labor force
    2. There is a growth in number of jobs but labor force remains constant or shrinks
    3. There is a degrowth in number of jobs but labor force shrinks even faster

From the perspective of long-term productive capacity of a economy, a fall in the unemployment rate due to the first condition is the best case. Our above table captures the fall in unemployment attributable to the first case.

It is interesting to note that growth in jobs exceeded the growth in labor force by the widest margin in Sept 2012, as compared to any other month since 1990.2

Does this mean that US economy has turned corner? We will wait for further evidence before we put our trust in the outlier data point.

1Includes part-time and full-time job creation

2It should be noted that since year 2000, virtually every year, BLS is making large adjustments to its base figures in the month of January. Hence, the large readings consistently seen in January in recent years should be taken with an “open mind”.


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