The Employment Situation report for September released by the Bureau of Labor Statistics (BLS) today surprised analysts with a 0.3 percentage point decline in the unemployment rate, from 8.1% in August to 7.8% in September. Unlike last month when the decline in the unemployment rate from 8.3% to 8.1% was attributable to a shrinking labor force, the September decline was based on a surge in the number of persons employed, a gain of 873,000, according to the household survey. This is a large gain, even for this survey, which tends to have bigger swings than the establishment survey.
In contrast, the establishment survey reported a much more subdued net gain of 114,000 in nonfarm payroll employment in September. The private sector added 104,000 jobs while the government sector added 10,000 jobs. Large upward revisions, mainly in local education, account for the bulk of the upward revision of 86,000 for July and August. This brings the average monthly pace of payroll gains to 146,000 for the year so far. Ordinarily monthly job growth of 200,000 is required to keep up with growth in the labor force and keep the unemployment rate from rising.
The divergence between the establishment and household surveys, in this case weak payroll growth and a declining unemployment rate, is not new. The establishment survey has a larger sample and movements in the household survey tend to be more volatile. This combined with the swings in the size of the labor force since the end of the recession point to the subpar growth in payrolls as a better indicator of current labor market conditions than the recent declines in the unemployment rate.