October's Job Numbers: Can We Trust Them?

WASHINGTON, DC-Back to its regular schedule after the government shutdown, the Labor Department released unemployment figures for October on Friday. Briefly, the US economy added 204,000 positions for the month while the unemployed rate rose to 7.3%.

In a normal month the 204,000 jobs would be par for the course—and perhaps even a little better than usual--for this current lackluster growth cycle, with the uptick in the unemployment rate adding a modicum of worry. But after a two plus weeks of government shutdown, October can hardly be classified as normal.

There are two schools of thought about Friday's employment figures brewing: the numbers were better than expected given the hit the economy took for the month, which has its own set of implications; or revisions are coming and the current data is hopelessly skewed.

Let's start with the case for optimism. Besides the 204,000 jobs added, Labor also reported that an additional 60,000 jobs were added to the August and September reports—average job growth for the past three months now officially clocks in at 202,000, a respectable enough number.

In short the month exceeded even the most optimistic projections, wrote Hessam Nadji, managing director, Research and Advisory Services for Marcus & Millichap, in this blog post.

"With the increase in payrolls so far this year, roughly 83% of the 8.7 million positions lost during the recession have been recovered," he writes.

"Despite facing constant and varied headwinds throughout the year, the economic and employment recovery appear quite broad and self-sustaining, setting the stage for potentially greater economic growth in the fourth quarter," he wrote. "The US economy remains firmly on track to add more than 2.2 million jobs this year, exceeding last year's total by a slender margin."

Also Labor released a separate household survey that showed household employment posting its largest drop since March 2009, with the number of temporary laid off workers jumping by nearly 500,000—presumably the furloughed federal and contractor workers. It was those people that pushed the unemployment rate up one-tenth to 7.3%.

Or maybe not. As Doug Duncan, chief economist at Fannie Mae notes, the deterioration in the household survey "… is in line with data from our October National Housing Survey, released [last Thursday], which shows a marked decline in consumer attitudes toward housing and the broader economy."

Duncan, though, appears to be edging cautiously to the optimist camp. He began his comments with the observation that the payroll increase of 204,000 "was a surprise given the government shutdown and debt ceiling standoff that occupied nearly half of the month."

Chris Muoio, senior associate and economist with Auction.com Research, for his part, has his doubts about the value of this particular report. "We strongly caution that the government shutdown affected this report in many ways and that it does not provide a useful indicator of current labor market trends," he says. "We expect data volatility and significant revisions in months ahead."

Also to be considered is a longer, deeper debate about the value of the Labor Department employment calculations as more of the economy goes digital.

Wells Fargo Economics Group, for example, thinks BLS data are outdated for that reason. "Simply stated, the labor market of the 21st century is quite different than in the past," it said in a new commentary "Is the Unemployment Rate a Reliable Barometer?"

For all his doubts about the October numbers, Muoio appears to be fairly sanguine about the progress the housing and real estate sector is making in general. He notes that housing recovery "has become a more recent driver of employment growth, which has continued despite the recent mixed signals on the pace of housing recovery."

Residential building construction employment has risen 1.5% over the last three months and is now 3.9% higher than a year ago, he further observes. "The positive effect is spilling into home improvement stores, which have expanded employment by 1.3% over the last three months and 3.4% from a year ago," Muoio says. "Nonresidential building construction and heavy engineering construction have also shown gains over the last three months."

Nadji, as well, points to positive trends for the industry. Consistent job growth fuels the formation of new rental households and sustains a robust national apartment sector, he said in his post. Also, the national office market appears positioned for an imminent upswing in property operations. "Employers added nearly 53,000 full-time office-using positions last month, raising to more than 1 million the number of such jobs created in the past two years. Newly hired workers are filling under-utilized spaces and further gains will prompt a renewed consideration of larger layouts by tenants."

Finally, an analysis of the construction jobs created for the month highlights these favorable industry themes as well. Construction employment hit a 50-month high for October as employers added 11,000 jobs--the fifth consecutive month of sector job gains, while the industry unemployment rate fell to 9%, according to the Associated General Contractors of America.

"After some very dramatic declines and years of sluggish growth, the construction industry is slowly adding jobs," said Ken Simonson, the association's chief economist. "The federal government shutdown did not appear to have undermined construction job growth in the short term probably because it did not significantly impact projects that were already underway."

Construction employment totaled 5,834,000 in October, an increase of 185,000 from a year earlier, and is now at the highest level since August 2009.