With fewer than 20 days before the election, the economy remains a central concern to voters and a main theme for both parties.
The official unemployment rate for September is 4.1 percent, marginally down from August’s 4.2 percent, a level so low that it’s considered full employment. The September nonfarm payrolls report showed a blockbuster growth of 254,000 jobs for the month, beating economists’ estimates. So why does consumer sentiment (as reported by the University of Michigan) remain so dismal?
How the Labor Statistics Are Calculated
The unemployment data is released by a government agency—the Bureau of Labor Statistics (BLS). It is not based on the total count of people collecting unemployment insurance; it is based on a survey that the U.S. Census Bureau conducts for the BLS each month.During the survey reference week, usually the calendar week that contains the 12th day of the month, 60,000 sample households are interviewed either in person or over the phone about labor status. For employment status, it is not only regular full-time labor participants who are counted; it also includes all part-time and temporary workers. So, technically, if a person worked one hour on the 11th and was laid off for the rest of the month, the person would still, for the purposes of the unemployment situation, be considered employed. The headline unemployment rate does not take into consideration discouraged workers, that is, those workers who have dropped out of the labor force and are no longer “actively” seeking employment because they believe there are no suitable jobs for them. Hence, they are not included in unemployment statistics.
Role of Immigrants in Labor Statistics
So, we can see that nonfarm payroll is a subset of employment. However, we can notice something peculiar. During this administrative period, the rate of increase in nonfarm payroll has outpaced that of total employment, and the gap has significantly widened in the past two years. How could this be possible? Could there be some jobs counted in nonfarm payroll but not in employment data? Or is there some error in nonfarm payroll data?
While the unemployment data suggest a booming economy, the U.S. labor participation rate has never recovered to pre-COVID-19 levels; in fact, it is hovering under the average of the past 50 years. A declining participation rate means a higher percentage of people are either unable or unwilling to work at current wages.
When we take a closer look into the labor participation rates, the falling rate is driven by native-born workers, while foreign-born workers are gaining ground. In September, the foreign-born employment level stood at 31.4 million, a whopping gain of 4 million compared with September 2019 (before COVID-19). During this period, native-born employment shrank by 454,000. The gain in employment is clearly driven by foreign-born and not native-born employees.
Disparity in Employment Growth
If we dissect the employment data into part-time employment versus full-time employment, we find that full-time employment, as shown by the orange line on the chart below and measured on the left-hand vertical axis, has not grown in 2024. The recent gains in employment figures are from part-time employment, shown by the blue line and measured on the right-hand vertical axis.
If we turn our attention to employment requiring a relatively higher level of education, we find something more disturbing. The labor force participation rate for people who are 25 years old with a bachelor’s degree or higher is falling more significantly than the overall participation rate for the U.S.-born.
More Data Corrections?
The BLS has been routinely revising its numbers. In August, the BLS revised downward nonfarm payroll jobs by 818,000 for the 12-month period from April 2023 through March 2024, which was nearly 30 percent less than what was initially reported. The sector that saw the biggest downward revision was professional and business services, where job growth was 358,000 fewer.Will there be another major revision? Each year, the BLS does a broader revision when it gets the results of the Quarterly Census of Employment and Wages, but that will surely be after the election.
Putting the pieces together helps us to solve the puzzle of the U.S. job market. The recent job creation, if it is not going to be revised down dramatically again, is mostly coming from lower-income and part-time jobs that are being filled by foreign-born workers, probably with a good portion by undocumented immigrants. We haven’t seen growth in manufacturing, and even the blockbuster nonfarm payroll gains in September provide lackluster news for the sectors that boast higher-paid jobs, such as information, financial activities, and professional and business services. These realities are not lost on consumers and probably explain why consumer sentiment has been so low.
An alarming aspect of this is the deterioration in native labor force participation, as well as the significant decline in the labor force participation rate for people who are 25 years old and older and with at least a bachelor’s degree. Even more alarming is how little these facts are ever discussed. There is an urgent need to protect the labor market for U.S. citizens instead of sidelining them in the job market upheaval that our economy is experiencing.
