Upward Revisions Offer Brighter Picture of Job Growth

Employers added 157,000 workers to their payrolls in January, the 28th consecutive month of job gains. The unemployment rate, which is calculated using a different survey, edged up slightly in the month. It has remained approximately unchanged since last September. Overall, the latest employment report shows little change in the steady trend toward an improved job market.

The more interesting aspect of the report is the light it sheds on employment growth over the past two years. Following its usual practice the BLS issued revisions in its past estimates of the previous two years’ payrolls. The new estimates are based on updated and comprehensive reports from employers. The revisions substantially raise previous BLS estimates of job gains in 2011 and 2012. Compared with the payroll numbers published in early January 2013, the most recent report shows employers added an extra 263,000 jobs in 2011 and 335,000 extra jobs in 2012. In combination, the new numbers boost estimated job gains in the last two years by almost 600,000, or 16%. Payroll jobs lost in the Great Recession are being replaced considerably faster than we thought a month ago.

In the employment report issued in January, the BLS estimated that monthly job gains in the October-December quarter averaged slightly more than 150,000 a month. This is a decent though not extraordinary pace of job growth. The U.S. economy needs to generate about 90,000 new jobs a month to keep up with the growth in the working-age population. If payrolls are climbing 150,000 a month, the pace of job growth is fast enough to gradually reduce the nation’s unemployment rate. The revised payroll numbers published today suggest that job gains in the October-December quarter averaged slightly more than 200,000 a month. Thus, employment increases in the last quarter of 2012 were more than twice as fast as the gains needed to accommodate the growth of the working-age population. We should expect to see the unemployment rate fall in future months, possibly by a faster pace than we have seen over the past year.

The optimistic picture of job growth in recent months seems hard to square with the downbeat report on GDP issued by the Commerce Department earlier this week. There are a variety of reasons that an initial report of GDP growth may provide a gloomier picture of the state of the economy than the picture that emerges from the jobs report. At this stage, both the GDP and payroll employment reports are based on data that are subject to revision as more complete information becomes available. Nonetheless, the payroll employment statistics show a consistent picture of improvement in payrolls, and the revisions reinforce the view that private-sector employers see a steadily increasing need for new employees.

The demand for workers in the public sector continues to be weak. Total government employment fell slightly in January. It has declined 74,000 in the 12 months through January. In contrast, private payrolls rose almost 2.1 million in the same period. The best that can be said about the trend in government employment is that public agencies shed fewer jobs in the past year than they did in 2010 or 2011.