Investors assessing the dismal labor market might be worried to learn of the even bleaker picture painted Friday by the Labor Department's household employment survey, which some economists consider a more accurate measure than payrolls. In February, the household survey showed that employment plummeted by 265,000. What's more, the jobless rate, which held steady at 5.6%, would have climbed to 5.8% if 392,000 workers had not simply dropped out of the labor force. "It's not a good report," said Paul Kasriel, chief economist at Northern Trust. "I don't think there's any positive spin that you can put on it." A number of economists have said the household survey is a better gauge of employment than the payroll survey because it takes into account self-employed workers. This survey has shown that 1.3 million jobs have been created over the past year. In comparison, the payroll data show that just 122,000 jobs have been created. Last month, however, both surveys painted a similarly weak picture of the labor market. According to the payroll data, just 21,000 jobs were added in February, well below the consensus estimate of 130,000. Some economists said the weather had an impact, noting that construction jobs fell 24,000. But January's payroll additions were revised down to 97,000 from 112,000, and December's were lowered to 8,000 from 16,000. The Bureau of Labor Statistics calls about 60,000 homes to compile the household survey but contacts 400,000 businesses to establish the level of payrolls. Because the payroll sample is so much larger, covering millions of workers, many economists feel this set of data is more accurate, but the debate about which survey is more reliable has raged on. Brian Wesbury, chief economist at Griffin, Kubik, Stephens & Thompson, believes the payroll data have been understating the level of job growth, saying these statistics aren't keeping pace with the dynamic nature of the economy and all the new business formation.
Kasriel contends that while there are a lot of self-employed workers today, many of them are laid off white-collar workers with one client. Dale Klamfoth, a regional vice president at DBM, a career transition consulting firm, said the weakness in the household survey last month could be due to small business owners simply giving up. "It's hard to tell whether people who started businesses are now saying maybe that's not a good idea, I don't have any customers," he said. Stocks dipped in and out of positive territory on the weak data Friday. While the report bodes ill for consumer spending, it will probably delay an interest rate hike by the Federal Reserve. Bonds, meanwhile, took off, with the yield on the 10-year note falling to its lowest level since last July. The news came as a surprise to most economists Friday, even those who had been forecasting a soft number. David Rosenberg, chief economist at Merrill Lynch, said the report was highly unusual because over nine postwar cycles, the average increase in jobs at this stage has been 240,000 or more. He also noted that the labor participation rate, which is an important measure of confidence in job prospects, fell to 65.9% from 66.1%, the lowest rate since September 1998. Average hourly earnings rose 0.2% but the year-over-year gain in earnings now stands at 1.6%, the weakest since December 1986. A year ago, wage growth was running at 3.4%. The average duration of unemployment rose to 20.3 weeks from 19.8 in January, the highest since January 1984. And the share of the unemployed that have been out of work for 27 weeks or more rose to 22.9% from 22.7%. There had been warning signs that a weak report was in the offing. The Federal Reserve's beige book said employment was growing "slowly" and that consumer confidence had fallen 10 points in almost every survey, as consumers complained about the job market. Still, Wesbury said he remains hopeful that the situation will get better, albeit slowly.
"The outlook is improving," he said. "This is the first time year-over-year nonfarm payrolls are up since June 2001, and we've now had six months in a row of positive net job gains." Wesbury noted that the number of discouraged workers fell in February, while temporary help rose by 32,000 after a decline in January. "I'd have to say the bond market reaction is more indicative of what the Fed will do than a sign that the economy is somehow really weak," Wesbury said. For the Bush administration, however, the tepid job growth is worrying. Treasury Secretary John Snow said the February results were an aberration. But the presumed Democratic Presidential nominee John Kerry said voters should "give George Bush a new job in November and start putting America back to work." Within the job report, only services registered an appreciable gain last month, adding 46,000 jobs. Manufacturing, which has seen a three-and-a-half-year job exodus, showed signs of leveling off, shedding only 3,000 jobs. The leisure and entertainment industries gave up 9,000. The U.S. economy is in some respects a victim of its own success. Productivity rose 4.4% in 2003 following a gain of 5% in 2002, as companies learned to produce more with fewer workers. Profits have risen following two years of brutal restructuring that have chased 1.7 million factory jobs out of the country since late 2001. A trend toward foreign outsourcing, which is shaping up as a major issue in the coming presidential election, exacerbated the problem.