Get Ready for an Ugly October Jobs Report

The next jobs report is going to be tough to dissect, thanks to the shutdown.

A customer enters a Chinese bakery that has a sign posted in the door, "Hiring! Sales Position Inquire within," Tuesday, Oct. 22, 2013, in New York.
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It was bad enough to hear that employers hired only 148,000 new workers in September. But relief won't be coming with the October jobs report.

That's not necessarily because the job market got worse in October. Rather, the October report may make it look that way. According to the Labor Department, workers on furlough are counted as unemployed in the Current Population Survey, the department's survey that determines the unemployment rate.

[READ: Employers Added 148,000 Jobs in September, Unemployment Declines]

"Workers who are reported in the survey as on furlough for the entire reference week should be classified as unemployed, on temporary layoff," writes Steve Haugen, economist at the Bureau of Labor Statistics, in an email. "In the CPS, workers on temporary layoff need not be actively looking for work to be counted as unemployed, and they are so classified regardless of whether or not they are, or expect to be, paid for the time they are on temporary layoff."

The survey itself was held up this month by the shutdown, but respondents nevertheless answered the same question they answer every month: whether they were working during the week that contains the 12th. In this case, it was Oct. 6 through 12, right in the middle of the furlough that sidelined many federal employees from Oct. 1 through 16.

An estimated 800,000 workers were initially furloughed due to the shutdown, but the Defense Department recalled roughly 350,000 civilian workers on Oct. 5. If all of those leftover furloughed employees were estimated to be unemployed in October, it could bring the unemployment rate up substantially. If 450,000 extra people were counted as unemployed last month, for example, it would have boosted the jobless rate from 7.2 to 7.5 percent.

The White House meanwhile has estimated that the shutdown would "subtract" 120,000 jobs from October's jobs report. Average monthly payroll growth for 2013 has been at around 178,000. If October posted average growth, 120,000 fewer jobs would put that payroll figure at an abysmal 58,000. Payroll numbers and the unemployment figure come from two different surveys, but applying that figure to the jobless figure shows an additional 120,000 unemployed people would still shift the jobless rate upward slightly, to 7.3 percent.

However broad the swings in the numbers might be, one thing is certain: the October jobs report is going to provide an inaccurate picture of the job market. And given margins of error and broader economic trends at work, it will be difficult to fully understand exactly how far off the report will be, meaning that even a remarkably weak report may be discounted.

[READ: Congress Has Lowest Approval Rating Ever]

That makes life tougher for the nation's top economic policymakers. The Federal Reserve's Open Market Committee, which sets monetary policy, will now be doing its work in December with one less reliable data point at its disposal.

"The payroll report is so huge for the Fed," says James Marple, senior economist at TD Economics, pointing out that decelerating job growth has already pushed the Fed into delaying the taper on its monthly asset purchases known as QE3. "Throwing another wrench in there and making it at least more difficult to interpret I think makes the job of policymakers more difficult, [and] especially makes the job of the Fed members more difficult," adds Marple.

Which is not to say delayed and inaccurate jobs reports are themselves bad for the economy. While fuzzy data may cause some uncertainty, he says, it's nothing like the uncertainty caused when the government shuts down or threatens to default.

"I would say it's pretty minor – inconsequential compared to just the broader, much larger uncertainty of – 'Hey, is the U.S. government going to pay their debt?' – uncertainty that's more noticeable on a macro level," Marple says. "I think the data delays – it annoys economists, but I'm doubtful that it's going to have a huge macroeconomic impact."

 

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