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Why a spike in Oct. unemployment may not be so bad
Washington • The jobs report for October due out Friday may be bleak. It might even be scary. The unemployment rate could jump by the most in three years. Hiring may slow from an already weak pace.
The ugly figures will reflect the government's partial shutdown, which coincided with 16 days in October. The trends for the job market will likely reverse themselves in coming months.
"It's going to be a very messy report, and I don't think we think should take it at face value," said Jennifer Lee, an economist at BMO Capital Markets.
Economists warn that the unemployment rate could surge as high as 7.5 percent from 7.2 percent in September. That would be the steepest one-month rise since 2010.
The number of jobs added in October could slow to roughly 120,000 from the 148,000 added in September. That isn't healthy. In the first nine months of this year, the average job gain was 180,000.
The shutdown will be mostly to blame. But its effect on the data won't be easy to tease out. Economists have all but thrown up their hands trying to forecast Friday's figures or to suggest what they might mean. However the numbers turn out, the distortions mean the monthly jobs data will be less useful in gauging the economy's health than they normally are.
"We have much less confidence in these numbers than usual," economists at Bank of America Merrill Lynch wrote in a note for clients.
Why the confusion?
Consider how the jobs report is compiled: It's derived from two separate surveys. Each survey will be affected differently by the shutdown.
One is a household survey. Government workers ask adults in a household whether they have a job. Those who don't but are looking for one are counted as unemployed. That's how the unemployment rate is calculated.
The other is a payroll survey. The government asks mostly large companies and government agencies how many of their employees worked or received pay, typically during the second week of the month. This survey produces the number of jobs gained or lost.
Suppose you're a federal worker who was furloughed by the shutdown. The payroll survey would consider you employed. But the household survey would count you as unemployed.
Why the disparity?
Because furloughed federal employees received back pay for the time they didn't work. So for the purposes of the payroll survey, they were employed. The same is likely true for government contractors who were temporarily laid off. Many were probably paid for at least part of the time covered by the payroll survey. So the payroll survey will consider them employed.
That's why October's job gain isn't expected to drop much.
The household survey takes a different approach: It will count both the federal workers and the contractors as unemployed because they weren't working during the survey period.
The shutdown furloughed about 450,000 federal employees in the second week of October. If the number of unemployed rises by that much in October's jobs report, the unemployment rate could reach 7.5 percent.