A Different Take on September's Employment Numbers

by: Bob McTeer

Nonfarm payroll employment declined by another 263,000 jobs in September. According to the Labor Department release, over the recent period:

From May through September, job losses averaged 307,000 per month, compared with losses averaging 645,000 per month from November 2008 to April. Since the start of the recession in December 2007, payroll employment has fallen by 7.2 million.

As usual, most of the TV commentators gave the impression to their viewers that there was no job creation in September and that there were 263,000 job losses. A typical question was “When are we going to see job creation again?”

The truth is that there were many jobs created in September and in recent months. It’s just that there were more jobs lost. The numbers we get are the net differences between significant numbers of gross job gains and gross job losses. These gross gains and losses are many times the net difference. This detail is worth keeping in mind lest we get the false impression that our dynamic ever-changing and evolving economy is stagnant.

The Bureau of Labor Statistics, in addition to the net changes in jobs, publishes a data series called Business Employment Dynamics. It shows the gross changes that make up the net changes. Unfortunately, the gross changes are published with a lengthy lag.

When I checked on this a couple of years ago before the dramatic declines began, I found that the monthly gross job gains and gross job losses were very roughly 240,000 each per month. On average, and very roughly speaking, the net gains would be about that much above 240,000 and the net losses would be about that much below 240,000.

I adopted the 240,000 number as my approximation because it was also convenient to think of it as the length of a 24 inch, or 2 foot, ruler, with each of the 24 inches representing 100,000 jobs. As a guest host on Squawk Box on CNBC once, I actually brought two colored 24 inch sticks to demonstrate visually that what makes the news is whether the green job gain stick was an inch or two above or below the red job lose stick. I think I made the point adequately, but the regulars on the set looked a little pale when I brought out my sticks.

The latest published numbers from gross private job gains and losses are for the 4th quarter of 2008 when unemployment was rising rapidly. The gross job gain that quarter came to 6,712,000 while gross job losses totaled 8,467,000, for a net quarterly loss of 1,755,000 private jobs. Dividing these numbers by 3 to convert quarters to months, gross monthly gains were 2,237,333, gross monthly losses were 2,822,333, and net monthly private job losses were 585,000 per month. That last number is the only one emphasized in the media and what most people see or hear. I think most will agree that, while correct, that practice greatly understates the underlying dynamics of the economy.

In terms of my corny sticks with 1 inch equal to 100,000 jobs, gross monthly job gains are just over 22 inches while job losses are just over 28 inches–a six inch difference. Job gains are down two inches while losses are up four inches. They need me and my sticks back on Squawk Box.