The BLS announced today that 80,000 jobs were created in the U.S. in June, compared to 77,000 in May and 68,000 in April. Despite the small apparent increase in payroll employment gains from April to June, there is no meaningful difference in the number of jobs created between April, May and June; their difference is well within the statistical margin of error. Payroll employment gains are reported to a level of accuracy far beyond our ability to count all employees in the U.S. in real-time. The difference between an employment gain of 80,000 and a consensus forecast of 125,000 is still far below the margin of error for estimated job growth. While sophisticated labor market observers recognize this fact, the casual consumer of economic news should be more concerned about longer term labor market trends than a single month’s report.
The BLS reports the number of jobs created to the nearest 1,000, even though the standard error of each monthly estimate is approximately 60,000 jobs. This means that the margin of error for each month’s payroll employment gain is about 100,000. For non-statisticians, labor economists are only 90% certain that job growth in June was within an interval from a loss of 20,000 jobs to a gain of 180,000 jobs.
The unemployment rate is reported to the nearest one tenth of a percentage point, while the standard error of the unemployment rate estimate is about .12 percentage points. In other words the BLS reports the unemployment rate to the nearest 0.1 while the margin of error is approximately 0.2.
If the BLS were to report payroll employment similarly to the unemployment rate, payroll employment would be reported to the nearest 50,000 jobs not the nearest 1,000. If the BLS reported payroll employment rounded to the nearest 50,000 jobs, those without a statistics background would recognize how noisy monthly employment estimates can be.
Put somewhat differently, if the BLS instead reported the unemployment rate to the same level of inaccuracy as payroll employment, it would report the unemployment rate to the nearest two one-thousandths of one percent. If that were the case the BLS would have reported that the unemployment rate ticked up from 8.206% in May to 8.216% in June.
The labor market recovery is very weak because over three months, where the margin of error is much smaller, employment gains totaled 225,000 jobs. If the labor market were healthy, the economy would create more than 225,000 jobs per month not per quarter year. During the recovery in 1983-1984, there were 15 straight months where job growth exceeded 225,000 per month. We are on a long slow road back to full employment.