What A Difference A Month Makes? Maybe Not Much

by: The Federal Reserve Bank of Atlanta

By Dave Altig

By most accounts, the July employment report released this morning was something of a disappointment, perhaps more because it fell short of expectations than for any absolute signal it sends about the state of the economy. To be sure, the 162,000 net jobs created in July were below June's 12-month average, which itself ticked down a bit as a result of negative revisions to the May and June statistics.

"Ticked down a bit" is the operative phrase, as the average monthly jobs gain from May 2012 through June 2013 now registers at 189,000 as opposed to the 191,000 reported last month. With this month's new data, the 12-month average gains (from June 2012 to July 2013) clock in at 190,000 jobs per month, still right on the trend that has prevailed over the past couple of years. In other words, not much has changed in the longer view of things.

Our interests here run to the policy implications, of course. Not too surprisingly, focal points are 1) the 7% unemployment rate neighborhood that Chairman Bernanke has associated with Federal Open Market Committee forecasts of what will prevail around the time that the Fed's current asset purchase program might be ending; and 2) the benchmark 6.5% unemployment that the statement following this week's FOMC meeting continued to identify as the earliest possible point at which adjustments to the Committee's interest rate target will be considered.

Following last month's employment report I offered up calculations from the Atlanta Fed's Jobs Calculator regarding the dates at which these unemployment thresholds might be reached, under the assumptions that jobs gains average 191,000 per month going forward, the participation rate remains constant at the reported June level, and there will be no change in the relationship between employment statistics from the payroll (or establishment) survey (whence comes the headline jobs number) and the employment statistics from the household survey (statistics used to calculate the unemployment rate). All of these figures change month to month, so it may be useful to update that exercise with current statistics (with last month's calculations noted parenthetically):

Job growth and unemployment rates as of July 2013 (June 2013) employment reports

Not much change there. In fact, the unemployment rates in these calculations fall a little faster than last month's calculations suggested, in part due to the ancillary assumptions on participation rates and the payroll-employment /household-employment ratio. In the spirit of pessimism -- an economist's university-given right -- I'll ask: What if the latest 162,000 job gain number is closer than the trailing 12-month average to what we will experience going forward? Easy enough to explore:

Unemployment rates under the assumption of 162,000 jobs created per month going forward

I will leave it to you to decide whether the differences imply important policy distinctions.

Side note: For a broader look at labor market conditions, take a look at the Atlanta Fed's spider chart, updated as of today's employment report.