A Closer Look at US Payrolls and Jobless Claims

No doubt, unemployment improvements have been slow in coming and volatile at best—most everyone would like to see faster, more consistent gains. But a slow decline in the official unemployment rate isn’t unusual—historically, the rate has fallen slowly as an expansion progresses. What’s more, by focusing solely on the headline number, many may miss the broader trend—which has been improvement and ongoing employment growth.

For example, while it may appear unemployment has only marginally improved since 2009, non-farm payroll reports show the economy has added an average of 126,000 jobs a month for the last 30 months, and employment levels are currently at three-year highs. See Exhibit 1.

Exhibit 1: Non-Farm Payrolls Excluding Census Impact

Sources: Bureau of Labor Statistics, Thomson Reuters.

However, the non-farm payroll headline figure comes from the “Establishment Survey” of large businesses and organizations—which doesn’t directly capture small business hiring. The separate “Household Survey,” used for calculating the unemployment rate, asks people (as opposed to businesses) about their employment status. And the Household Survey shows even higher growth in employment over the past year. (However, see here for our thoughts on the wonkiness of the unemployment rate’s calculation.)

Exhibit 2: Establishment Versus Household Survey Change in Employment (1000s)

Sources: Bureau of Labor Statistics, Thomson Reuters.

Furthermore, initial and continuing jobless claims are significantly lower than at their 2009 peak. Likewise, initial jobless claims remain well below 400,000—a level widely considered a breakeven point for sustainable net job creation in the economy.

Exhibit 3: Initial and Continuing US Jobless Claims

Source: US Department of Labor, Thomson Reuters.

Even when examining broader unemployment trends (including “discouraged workers” who have stopped searching for a new job or are underemployed), the unemployment rate has significantly retreated from its 2009 high. This suggests unemployment rate improvement hasn’t only been because people are dropping out of the work force, but because of natural employment gains—which we believe will persist as the economy continues growing. See Exhibit 4.

Exhibit 4: US Unemployment Rates

Sources: Bureau of Labor Statistics, Thomson Reuters.

To be sure, still-high unemployment clearly isn’t ideal, but as we’ve detailed in the past, larger employment gains often come well into an economic expansion.