Shutdown impact on jobs springs surprise

The 16 days of enforced inaction in government functions may have helped, not hurt, the improved US jobs picture. Photo / AP

The United States Government's shutdown may have affected October's jobs numbers ... but not in the expected way.

For weeks, the White House had braced for a dour report on hiring, with economists and aides lowering expectations and blaming last month's partial shutdown for the inevitable bad news to come.

But Friday's numbers showed employers appeared to have ignored the shutdown and hired away, to the tune of 204,000 jobs in October.

The shutdown, it seemed, had had no effect. Not so fast. The 16 days of federal worker furloughs and government disruptions may have helped, not hurt, the improved jobs picture.

Typically, jobs numbers are announced on the first Friday of the month. Because of the shutdown, the Bureau of Labour Statistics delayed the release of the jobs numbers by a week to allow more time to collect payroll and household data. That extra time resulted in an above average response rate for payroll data.

The average participation rate by employers in payroll surveys for the nine months before October was 76.4 per cent. That meant that in subsequent months, as more data was collected, the hiring numbers were adjusted, often upward.

In October, with an extra week to collect data, the participation rate was 83.5 per cent, the highest ever.

A robust hiring number, to some economists, now felt slightly inflated.

"It seems that when the initial response rate is high, the initial payroll number is often, though certainly not always, stronger than the prior trend," Ian Shepherdson, chief economist at Pantheon Macroeconomics, wrote in a research note.

In other words, if the jobs numbers in previous months were based on a lower participation rate, a stronger participation rate would skew the number up.

"Tentatively, we think the effect of this could explain all the overshoot in payrolls," Shepherdson wrote.

Some economists are predicting that when the October numbers are updated, they might be in for a downward revision and November could yield a lower number as well.

"Businesses may have inadvertently counted employment for an extra week," said Mark Zandi, chief economist at Moody's Analytics. "That could juice up the number. That may mean that we actually get surprised next month with a much weaker number."

The shutdown had another effect on the employment data. Besides conducting a survey of employers, which gives data on hiring, the Government also surveys households to determine the unemployment rate.

Furloughed federal employees were considered unemployed during the shutdown and thus contributed to the increase in the unemployment rate in October from 7.2 per cent to 7.3 per cent. Without the furloughs, the unemployment rate would have dropped.

But some furloughed employees were counted as still employed. As a result, if they had been properly listed as unemployed, the jobless rate for October could have been higher than 7.3 per cent.

Even with data showing more hiring in the month, President Barack Obama on Friday stuck with the White House theme that the shutdown "harmed our jobs market".

"The unemployment rate still ticked up and we don't yet know all the data for this final quarter of the year, but it could be down because of what happened in Washington," Obama said.

Americans' participation in the labour force went down.

"Even factoring out the impact of the shutdown, we have a lot fewer people in the labour force than you'd expect," said Jared Bernstein, senior fellow at the Centre on Budget and Policy Priorities.

- AP