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The jobs situation is improving

The April establishment survey of jobs found a lot more than the market expected, but the household survey found a lot less. These two measures don't always agree every month, but over time they must. The household survey of private sector jobs is rising at a 1.4% annualized rate over the past six months, while the establishment survey is registering a 2% annualized growth rate. Both show that the private sector has added about 2 million new jobs since the low in late 2009/early 2010. Things are picking up and the outlook is getting slowly better, much as I anticipated last January.

Although painful for those affected, from an economist's point of view it's also good to see the ongoing reduction in public sector employment. Shrinking the size of our bloated government is an essential ingredient to boosting the economy's ability to grow. This is a process that is likely to be underway for a long time. A reduction in government spending frees up resources that can be better utilized by the private sector; it's that simple. Although it doesn't make sense to Keynesians, the best stimulus for our economy at this time is a reduction in government spending. It's happening, and it's ongoing, and that is good news.

The upward tick in the unemployment rate, from 8.8% to 9.0%, is essentially meaningless, since it comes from the household survey, and as you can see from the top chart, that survey produces erratic results from month to month. The thing to focus on is that fact that the pace of new job creation in the private sector is improving, and it has already improved enough to generate a gradual reduction in the unemployment rate over time.

I should add, of course, that today's employment report gives the lie to the weekly unemployment claims data. As I argued yesterday, the sudden and outsized gain in unemployment claims in April was most likely due to faulty seasonal adjustment factors, and today's employment report confirms that.

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