That September Jobs Report was Weirder Than You Know

Sam Ro over at Business Insider notes that a 0.3% or greater decline in the unemployment rate in a single month has occurred nine times since 1990 and four times since 2000, including last month.

I decided to go back and look at those instances. Here are the five during the 1990s:

1. 7.6% to 7.3% in October 1992. Economic backdrop:

– GDP growth was 4.2% in 3Q

– Household employment fell by 92,000

– Net new payrolls increased by 178,000

– The labor force participation rate fell to 66.2% from 66.5%

2. 6.4% to 6.1% in May 1994. Economic backdrop

– GDP growth was 5.6% in 2Q

– Household employment rose 574,000

– Net new payrolls increased 333,000

– The LFP rate rose to 66.6% from 66.5%

3. 5.6% to 5.3% in June 1996. Economic backdrop:

– GDP growth was 7.1%

– Household employment rose 358,000

– Net new payrolls rose by 279,000

– The LFP rate stayed flat at 66.7%

 4. 5.5% to 5.1% in August 1996. Economic backdrop:

– GDP growth was 3.5%

– Household employment rose by 225,000

– Net new payrolls rose by 197,000

– The LFP rate fell to 66.7% from 66.9%

5. 4.7% to 4.3% April 1998. Economic backdrop:

– GDP growth was 3.6%

– Household employment rose by 395,000

– Net new payrolls rose by 278,000

– The LFP rate fell to 67.0% from 67.1%

What we see in these five 1990s examples is that they occurred during periods of strong growth, with GDP growth averaging 4.8%. That strong growth usually generated, in turn, strong job gains in both Labor Department job surveys. October 1992 was a bit of an exception because of the decline in jobs as measured by the household survey (the one they use to calculate the unemployment rate). But that drop was offset by a huge decline in the LFP rate.

Now let’s look at the four instances when the unemployment rate fell sharply during a period of weak economic growth:

1. 9.9% to 9.6% in May 2010. Economic backdrop:

– GDP growth was 2.2%

– Household employment rose by 34,000

– Net new payrolls rose by 516,000

– The LFP rate fell to 64.9% from 65.1%

2. 9.8% to 9.4% in December 2010. Economic backdrop:

– GDP growth was 2.4%

– Household employment rose by 283,000

– Net new payrolls rose by 120,000

– The LFP rate fell to 64.3% from 64.5%

3. 9.4% to 9.1% in January 2011. Economic backdrop:

– GDP growth was 0.1%

– Household employment rose by 110,000

– Net new payrolls rose by 110,000

– The LFP rate fell to 64.2% from 64.3%

4. 8.1% to 7.8% in September 2012. Economic backdrop:

– GDP growth is probably between 1% and 2%

– Household employment rose by 873,000

– New new payrolls rose by 114,000

– The LFP rose to 63.6% from 63.5%.

What we see here is that modest growth generated modest jobs gains, and the drops in the unemployment rate were helped along by declines in the labor force participation rate.

Except for last month. In September, we got a weird combination of weak growth, a rising labor force participation rate and otherworldly job gains as measured by the household survey.

It is a puzzler and suggests we may see a reversion or correction when the next job report comes out the first week of November.