Last Employment Report Before Election

Greg Ip writes in the WSJ about Friday’s big event, important not only for the financial markets, the last employment report before the elections. It is likely to impact the debate due later that day between Bush and Kerry on domestic issues. Ip presents the White House's bullish estimate, and the market's more modest one. A Cleveland Fed report is cited in order to explain why the so called household survey's figures differs from the more trusted payroll figures that paint a grim picture for the last couple of years.

Political Debate Over Jobs Intensifies
Bush Team Hopes for Lift
From Friday Payroll Data;
Revisions to Get Attention
By GREG IP
Staff Reporter of THE WALL STREET JOURNAL [subscription required]
October 5, 2004
...
Friday's data will be the last released before the Nov. 2 election. While markets will focus on the Bureau of Labor Statistics' jobs report for September, politicians might pay more attention to revised data for the period from March 2003 through March 2004.
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A memo from the president's Council of Economic Advisers estimates that the payroll-employment figure for that period could be revised upward by 288,000 jobs, and conceivably by as much as 384,000. In August, nonfarm payroll employment stood 913,000 jobs, or 0.8%, below the level when President Bush took office.
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Wall Street economists on average expect nonfarm payrolls to have risen 145,000 in September from August, according to a survey by Dow Jones Newswires and CNBC, with hurricanes having depressed the total by about 50,000
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The staff study found that when the most reliable part of the household survey is compared with the payroll survey, "both measures ... show a surprisingly similar picture of the weak labor-market performance that has prevailed during this recovery relative to previous business cycle periods."

Cleveland Fed economists Mark Schweitzer and Guhan Venkatu note in their study that the household survey's employment total can be distorted by problems in extrapolating from a sample of 60,000 households to the total population, because of uncertainty surrounding population estimates.

The economists look instead at the percentage of the working-age population that is employed, which they write is "more informative and less problematic" because it factors out population. The authors say that in the nine post-World War II recoveries prior to the most recent, this "employment to population ratio" fell on average 1.5 percentage points in the 18 months after recession began. By the three-year mark, it was down less than half a point.

After the most recent recession began in 2001, the ratio tracked the postwar average for the first 18 months, but then continued to decline. By the three-year mark it was down 2.2 percentage points from the peak.

"This picture is strikingly similar" to the poor performance of payroll employment relative to previous recoveries, they write. The authors estimate payroll employment rose 3.7% in the first three years of the nine previous business cycles, but is still down 1.5% in the latest.