This morning’s jobs report was awful. Unemployment went down from 8.3 percent to 8.1 percent, but nonfarm payrolls only increased by a dismal 96,000, with another 40,000 jobs lost in revisions of previous months’ figures. How does that compare to past months? Let’s find out:

Unemployment and Payroll Numbers

Unemployment went down, but that’s because people dropped out of the labor force, not because a healthy number of jobs were created. It fits with the pattern of stagnation of the past few months:

Public and private

Public employment continued to fall, by 7,000 employees in the past month alone, after months of shrinkage since the end of the Census (which is the big spike in the public employment data below) and the stimulus, and the dawn of austerity with the Republican takeover at the House and subsequent presidential actions like the federal pay freeze and the debt ceiling deal:

Alternative unemployment measures

As I explained last month, the BLS releases six unemployment measures. There’s U3, the number that shows up in all the news article, which counts people who don’t have jobs, but have looked for one in the past four weeks, but U1, U2, U4, U5 and U6 exist as well.  U1 and U2 are usually lower than U3, and measure the percentage of people who have been unemployed for 15 weeks or longer and the percentage who have lost jobs or done temporary work in the period in question, respectively.U4, U5 and U6 are usually higher than U3. Each of these categories includes everyone in all the lower categories: all people in U3 are in U4, all people in U4 are in U5, and all people in U5 are in U6. U4 adds people who have stopped looking for work because they’ve concluded none is available. U5 adds people who would like to work but for whatever reason have not looked for work recently. U6 adds the underemployed, or part-time workers who want to be working full-time but cannot for whatever reason.

The six measures are pretty well coordinated, and all six have stayed roughly constant of late, with all rates dipping down with U3 this past month:

Sectors

Different sectors were hit to varying degrees by the downturn, with construction doing the worst of the bunch but health and education barely getting hit at all. This month was especially grisly for manufacturing, which lost 15,000 jobs:

Wages

The rate of wage growth fell dramatically due to the recession, and remains stagnant, with average hourly earnings falling one penny from $23.53 an hour to $23.52 this past month:

UPDATE – Bonus chart: labor force participation

Labor force participation fell from 63.7 percent of the non-imprisoned population over 16 to 63.5 percent. That’s not just the lowest level since the recession hit, it’s the lowest level since September 1981, and the lowest level for men since the BLS started keeping track in 1948:

I noticed a fair amount of confusion Friday morning as to whether this was a good or a bad jobs report. After all, we added 96,000 jobs. That seems like a lot! And unemployment fell from 8.3 percent to 8.1 percent! So isn’t everything moving in the right direction?

Well, no. It was a pretty bad jobs report. But these things are really, really hard to read. So let’s spend a few minutes reading this one.

Nicholas Kamm/AFP/Getty Images

There are four numbers I watch for in the monthly jobs report: The change in “nonfarm payroll employment”, the change in the unemployment rate, the change in the labor-force participation rate, and the revisions to the previous reports.

Start with the main number: The change in “nonfarm payroll employment.” Don’t worry about the “nonfarm” part. You can ignore that. Just look at the number: The economy added 96,000 jobs in August. What makes this number a bit tricky is that you need to be comparing it to something else: The number of people who entered the workforce.

When the economy is doing well, about 120,000 people enter the labor force each month. That’s young people graduating high school, women going back to work after a child, etc. When it’s doing poorly, as it is now, that falls to about 90,000 (for more on that, see this post). So in order for us to simply break even on jobs, we need to add as many jobs as we’ve added people. In order for us to cut into unemployment, we need to add more. This month, at 96,000 jobs, we barely broke even.

Which brings us to the unemployment rate. If we barely broke even on jobs vs. population, how did the unemployment rate go down?

The answer is that the unemployment rate can go down for a number of reasons. The best reason for it to drop is that we added more jobs than we did people. But another reason for it to drop is that a bunch of workers without jobs simply stopped looking. That can happen because they give up and stop looking, because they stay home to take care of kids, because they go back to school, etc. At any rate, that’s why the unemployment rate dropped this month.

You can see that in the labor-force participation rate, which measures the percentage of working-age adults who are either employed or looking for work. It dropped this month from 63.7 percent to 63.5 percent — that means more than 500,000 workers left the labor force.

Finally, it’s important to remember, as my colleague Zach Goldfarb writes, that almost everything in this report is going to be wrong. It’s all preliminary data that will be revised over the coming months. Usually, those revisions are mild. But sometimes, they’re quite significant. This time last year, the August jobs report showed that we hadn’t gained or lost a single job. Republicans began calling Obama “President Zero.” But later revisions showed we’d actually gained 84,000 jobs, which while not great is a lot better than gaining zero jobs.

And so it’s worth keeping an eye on the bottom of the report, which tells you the revisions to the recent reports. This month, unfortunately, the revisions were all negative, subtracting more than 40,000 jobs from the June and July reports.

Of course, if you don’t want to do all that reading, you can just look at our graphs.

This morning’s jobs report was unexpectedly positive. Unemployment fell 0.3 points to 7.8 percent, and the economy gained 114,000 jobs in September – and revisions added another 86,000 jobs to the July and August numbers.

How does that compare to past months? Let’s find out:

Unemployment and Payroll Numbers

Unemployment took the biggest fall in months, reaching below 8 percent for the first time since January 2009:

Labor force participation

That said, the unemployment rate is a function of two things: the number of people employed, and the number of people in the labor force. But the proportion of people in the labor force actually went up, suggesting the fall in the unemployment rate reflects a real improvement, rather than people stopping their work search:

Public and private

Public employment stopped falling for the first time since February. Whereas previous July and August numbers saw it falling, revised numbers suggest that 73,000 public jobs were added in the past three months:

Alternative Unemployment Measures

As I explained last month, the BLS releases six unemployment measures. There’s U3, the number that shows up in all the news article, which counts people who don’t have jobs, but have looked for one in the past four weeks, but U1, U2, U4, U5 and U6 exist as well.  U1 and U2 are usually lower than U3, and measure the percentage of people who have been unemployed for 15 weeks or longer and the percentage who have lost jobs or done temporary work in the period in question, respectively.

U4, U5 and U6 are usually higher than U3. Each of these categories includes everyone in all the lower categories: all people in U3 are in U4, all people in U4 are in U5, and all people in U5 are in U6. U4 adds people who have stopped looking for work because they’ve concluded none is available. U5 adds people who would like to work but for whatever reason have not looked for work recently. U6 adds the underemployed, or part-time workers who want to be working full-time but cannot for whatever reason.

The six measures are pretty well coordinated, and all but U6 ticked down in September, suggesting again that the drop reflects real improvement:

Sectors

Different sectors were hit to varying degrees by the downturn. Construction took the heaviest hit while health and education were barely hurt at all. This month continued those patterns for the most part:

Wages

The rate of wage growth fell dramatically due to the recession, and remains low, but ticked up last month:

Jobless Americans (Tim Boyle/Bloomberg)

The most recent government jobs report showed that the U.S. economy gained 114,000 jobs in September. That was encouraging. But as we emphasized last week, the report came with a lot of caveats. The margin of error on the number of payroll jobs gained in September was plus or minus 108,293.

But history can also tell us how the government’s estimate for September jobs is likely to change in the months ahead. That number will be revised twice as the Bureau of Labor Statistics gathers fuller data. And, as Matt Yglesias notes, the BLS estimates often change dramatically over the course of those two subsequent revisions. Since 1979, the final revision has been, on average, about 57,000 jobs higher or lower than the initial report:

It does appear that the BLS is getting better at estimating. The average report in the 1980s was off by 72,150 jobs, while the average report in the 2000s was off by 48,060.

But estimation suffers a lot during downturns. The average error during a downturn is 89,321, and usually the initial estimate of jobs lost is too low. During the recent financial crisis, for instance, the initial BLS estimates each month underestimated job losses by, on average, 50,000 per month. All told, the initial monthly reports underestimated job losses by 950,000.

Let me repeat that — almost a million job losses were not counted in those initial reports. That, arguably, was a major reason why fiscal and monetary stimulus failed to get us back to our level of employment. The Obama administration and the Federal Reserve just didn’t know the full extent of the jobs crisis in 2009.

But the silver lining is that, since the downturn ended, the economy has been gaining jobs faster than the initial monthly reports suggest. Since June 2009 — when the recession officially ended — revisions have, on average, added about 30,000 jobs to the initial estimate. That adds up to 1.1 million more jobs than the reports initially counted.

The figures get one final look-through, called a “benchmark revision.”* The revision for 2011 found an even bigger discrepancy. That report concluded that we gained 386,000 more jobs between April 2011 and March 2012 than previously estimated, whereas the monthly revisions found a gain of only 340,000 additional jobs. So if September’s jobs report fits the pattern, it’s likely to get revised up — just as August and July did before it.

Now, this doesn’t mean the recovery is going well, just that it’s going less terribly than we initially thought. Between July 2011 and July 2012, we added an average of 155,000 jobs a month, which, according to the Hamilton Project’s handy calculator, gets us back to full employment …never (or at least not before 2025). But the initial estimates found an average gain of 126,000 jobs, a much more anemic pace.

So take Friday’s report with a grain of salt. If the recovery to date is any indication, the 114,000 number could very well be too low.

Further reading

- How the BLS computes these numbers

- Matt Yglesias on revisions

- BLS revision data

- Ezra on whether this time could have been different

- Brad on benchmark revisions

- The Hamilton Project’s employment calculator

We here at Wonkblog aren’t the only ones obsessed with the monthly jobs reports. There’s a whole cottage industry around predicting what the monthly numbers are going to say, and a major resource for prognosticators is the National Employment Report from the payroll processing firm ADP.

Usually released a day or two before the Bureau of Labor Statistics report, the ADP surveys 270,000 clients and asks how many people they have on payroll. That’s slightly more businesses than the Current Employment Statistics survey, upon which the BLS number is based, contacts for its initial estimate (although the businesses in BLS’s sample are larger than the ones in ADP’s). Because of the size of the sample, it’s taken seriously as an early indication of how the jobs market is doing.

That said, ADP and BLS have diverged of late. ADP predicted a gain of 162,000 jobs in September, well over the 114,000 estimate that BLS released. ADP’s August report predicted 201,000 new jobs, compared to BLS’ initial estimate of 96,000. Then again, BLS is often wrong, as I explained Monday. And a look at the numbers suggests that ADP has, since the recession started, done a better job.

I compared ADP and BLS’s initial estimates to the final “benchmark” estimates of the BLS. BLS uses tax data to put together a final estimate of jobs gained, one which is generally more reliable than survey data.

From January 2001 (the first month for which ADP has numbers) to November 2011 (the last month for which benchmark numbers are available), BLS generally did a better job. It was off by an average of 68,229 jobs, compared to 71,405 for ADP. BLS generally undershot, predicting on average 10,290 fewer jobs would be gained than actually were, while ADP overshot by 11,145 jobs on average.

So far so good. But since the recession started in December 2007, ADP has had the upper hand. It’s been off by 69,857 jobs on average, while the BLS has been off by 78,694. Much of that is because ADP was closer to the real scale of the jobs crisis during the recession, whereas BLS kept underestimating its scale:

 When the lines are above the X axis, they’re too optimistic. Their jobs numbers were higher than the actual ones. If they’re below the X axis, they’re too pessimistic. Throughout 2008, BLS kept underestimating the number of jobs that were lost, while ADP, while not perfect, got much closer. This isn’t to say it’s perfect – it whiffed big-time in June 2010, getting the real number wrong by close to 400,000. But it’s done better overall.

This doesn’t mean you should ignore the BLS estimates every month. But it does suggest that we should be paying at least as much attention to ADP.

October’s jobs report was much more positive than expected. The unemployment rate ticked up a tenth of a percentage point to 7.9 percent, but we gained 171,000 jobs  — big enough to be statistically significant. Even better, we gained 84,000 jobs in revisions to August and September data. Here, as always, are the highlights, in six charts.

Unemployment and Payroll Numbers

While unemployment ticked up, nonfarm payrolls had their best month in a long time, and the August and September data is better than anticipated:

 Labor force participation

What’s more, people rejoined the labor force in October, with the participation rate ticking up to 63.8 percent. If some of those people are unemployed but have just started to look for work again, that could explain why the unemployment rate is higher despite the good jobs numbers. If, alternately, those people got jobs, that would lower the unemployment rate:

Public/private

But the gains are still concentrated in the private sector, with the public sector losing 13,000 jobs last month:

Alternative unemployment measures

As I explained last month, the BLS releases six unemployment measures. There’s U3, the number that shows up in all the news article, which counts people who don’t have jobs, but have looked for one in the past four weeks, but U1, U2, U4, U5 and U6 exist as well.  U1 and U2 are usually lower than U3, and measure the percentage of people who have been unemployed for 15 weeks or longer and the percentage who have lost jobs or done temporary work in the period in question, respectively.

U4, U5 and U6 are usually higher than U3. Each of these categories includes everyone in all the lower categories: all people in U3 are in U4, all people in U4 are in U5, and all people in U5 are in U6. U4 adds people who have stopped looking for work because they’ve concluded none is available. U5 adds people who would like to work but for whatever reason have not looked for work recently. U6 adds the underemployed, or part-time workers who want to be working full-time but cannot for whatever reason.

The six measures are pretty well coordinated, and U1, U3, and U4 all ticked up, while U2 and U5 were unchanged and U6 went down:

Sectoral

Different sectors were hit to varying degrees by the downturn. Construction took the heaviest hit, while health and education were barely hurt at all. Same story this past month:

Wages

Wage growth is still tepid, hitting 1.55 percent last month, well below the annual rate of inflation. In real terms, wages are falling:

There’s no question that the October jobs report released Friday morning was the best in some time. Particularly encouraging was that employers reported stronger job creation than they had in September and that the unemployment rate ticked up only because almost 600,000 people joined the labor force, perhaps encouraged by improving prospects.

There may need to be more jobs before there are widespread pay increases.

But it wasn’t entirely positive. The report –and other recent indicators — revealed a soft underbelly: stagnant wages.

Last month, the average hourly earnings for all private sector workers actually fell a penny, to $23.58 an hour, the Labor Department said. Weekly paychecks are up only $12.38 over the past year, a measly 1.5 percent, to $811.35. That’s even worse than it sounds: The numbers are not adjusted for inflation, so in real terms the average worker likely saw a pay cut (October inflation data aren’t out yet, but for the year ended in September consumer prices rose 2 percent).

The report had worse news for “production and nonsupervisory” workers, the legions of Americans who aren’t managers. Their hourly pay also fell, but so did their hours, to 33.6 hours of work a week from 33.7. Michael Feroli, senior economist at J.P. Morgan Chase, points out in a report that measures of pay and hours for this group of workers are more reliable than those for workers overall, and are sending a gloomier signal.

That is consistent with other recent data. For example, the Commerce Department reported that inflation-adjusted disposable personal income was unchanged in September, after falling 0.3 percent in August. The same report showed that Americans are spending more money, but they are doing it by reducing their savings, not because they are earning more.

Ultimately, rising wages will need to go hand in hand with a growing job market, and it may be that more jobs will have to come first. After all, it is hard for workers to demand raises when employers feel like they have ample alternatives among the unemployed. But it is little solace for people who have been working hard and have nothing more to show for it.

The November jobs report is scheduled to come out at 8:30 Friday morning, and will surely be accompanied by the usual hyperactive analysis, rapid-fire tweeting, and general sense of eager anticipation.

But the numbers themselves are likely to be a muddy mess, offering little clarity on the true state of the U.S. job market on the eve of the fiscal cliff. The biggest reason is Hurricane Sandy, which struck the Northeast at the tail end of October and has made most economic data in the last couple of weeks hard to parse. But the confusion goes deeper.

First, she hit New Jersey. Then, she hit the economic data. (NASA)

Start with whatever any given jobs report tells us about the underlying state of the economy, namely whether hiring picked up or slowed down in the previous month. Adjust for the statistical randomness that can give misleading signals. Now add in the fact that around the holidays, the seasonal adjustment process looms particularly large and can create distortions; for example, Thanksgiving fell early this year, so retailers may have added temporary workers earlier than they usually do. Add in a looming austerity crisis of tax hikes and spending cuts scheduled to take effect Jan. 1; quite possibly, employers are holding back on hiring until a resolution is found, though with all the other things going on, it will be hard to separate that effect from everything else. And finally, account for a superstorm that shut down commerce in some of the nation’s most populous areas during the week of the jobs survey.

The consensus of analysts surveyed by Bloomberg News was that 86,000 jobs were added nationwide last month, down from 171,000 in October. The forecasters expect the unemployment rate to be unchanged at 7.9 percent.

But with all those layers of uncertainty, it’s hard to imagine any number that would count as a total surprise. BNP Paribas, for example, expects payroll gains of only 25,000 positions, which would be the weakest in more than two years. Economist Julia Coronado notes that her week forecast is “entirely attributable to disruptions associated with Hurricane Sandy,” which could bode well for the longer-term, as the impacts of the storm on the job market seem to be reversing quickly.

The intuition is simple: With power out and transportation networks blocked in coastal areas stretching from Maryland to Connecticut, many factories and other businesses had to shut down temporarily. Their workers were therefore jobless, if only for a short time (a time that coincided with the Labor Department’s survey period for the November jobs report). The number of people filing new claims for unemployment insurance benefits spiked to 451,000 the first week of November, up from an average of 372,000 the previous four weeks. But the number has fallen almost as quickly; the Labor Department said Thursday that only 370,000 people filed new jobless claims last week.

It will be possible to filter out the effects of the storm and glean what happened in the economy more broadly last month, but not until December 21. That is when the Labor Department releases state jobs numbers; a data set that is often overlooked, it will be  parsed to filter out the effect of job losses in New Jersey, New York, and other affected places.

So how can one parse from Friday’s report what is really going on in the economy? One approach is simply to filter out the categories of employment that are most sensitive to disruption from the storm and holiday seasonal fluctuations, and focus on those that remain. Out goes manufacturing, construction, transportation and warehousing, wholesale, the retail industry, and leisure and hospitality. The categories that remain include mining and logging, information, financial activities, professional and business services, education and health care, other services, and government.

In October, those non-storm-sensitive sectors added a combined 68,000 jobs. For early evidence on whether the pace of economic recovery sped up or slowed down on Friday, look at what happened to that number in November.

November’s jobs report was generally positive, but with some notable caveats. Unemployment is down to 7.7 percent, the lowest since the financial crisis hit, and the economy gained 146,000 jobs. Then again past months’ numbers have been revised down, and labor force participation is down as well. Let’s dig in, as we usually do, in charts.

Unemployment and Payroll Numbers

It was a generally solid month for both indicators, but that accomplishment was diminished slightly by lower numbers in previous months. Between the September and October revisions, we lost about 49,000 jobs:

Labor force participation

Last month, labor force participation — that is, the percentage of people in the working age population currently working — ticked up to 63.8 percent, an encouraging development. But this month it fell to 63.6 percent, wiping out last month’s gains:

Public/private

The private sector continues to outperform its public counterpart, with the former gaining 147,000 jobs and the latter losing 1,000:

Alternative unemployment measures

As we explain every month, 

the BLS releases six unemployment measures. There’s U3, the number that shows up in all the news article, which counts people who don’t have jobs, but have looked for one in the past four weeks, but U1, U2, U4, U5 and U6 exist as well.  U1 and U2 are usually lower than U3, and measure the percentage of people who have been unemployed for 15 weeks or longer and the percentage who have lost jobs or done temporary work in the period in question, respectively.

U4, U5 and U6 are usually higher than U3. Each of these categories includes everyone in all the lower categories: all people in U3 are in U4, all people in U4 are in U5, and all people in U5 are in U6. U4 adds people who have stopped looking for work because they’ve concluded none is available. U5 adds people who would like to work but for whatever reason have not looked for work recently. U6 adds the underemployed, or part-time workers who want to be working full-time but cannot for whatever reason.

For the first time in recent memory, all six measures ticked down:
 

Sectoral

Different sectors were hit to varying degrees by the downturn. Construction took the heaviest hit, while health and education were barely hurt at all. Same story this past month: 

Wages

Private wages continued to grow, but at 1.46 percent last month, probably not enough to outpace inflation:

The job market continued to make steady gains in the final weeks of 2012, as employers apparently shrugged off the standoff in Washington over the fiscal cliff and kept hiring.

Employers added 155,000 jobs in December, the Labor Department said, which is close to analysts’ forecasts and consistent with job growth over the last several months. The unemployment rate was 7.8 percent in December, unchanged from its revised level in November (that month’s jobless rate had previously been reported at 7.7 percent).

Both numbers point to a labor market that is getting stronger but not particularly rapidly. The economy in December was what we thought it was: trudging along consistently.

The gain of 155,000 jobs last month varies little from the average pace of increase over the last three months (151,000 jobs a month), or the last six months (160,000), or the full year 2012 (153,000). At that pace, U.S. unemployment should shrink slowly but steadily over time.

The new numbers showed that employers were not especially worried about the “fiscal cliff” — the series of tax increases and spending cuts that were scheduled to take effect Jan. 1 but which was averted at the last minute earlier this week — and did not ratchet back hiring on any large scale. While many executives voiced fear and annoyance at the hijinks in Washington over the standoff, the down-to-the-wire debate did not, from this report at least, appear to translate into fewer jobs.

Markets were little changed, reflecting analysts expectations for the report. The Standard & Poor’s 500 index was down 0.2 percent at 9:45 a.m.

“While more work remains to be done, today’s employment report provides further evidence that the U.S. economy is continuing to heal from the wounds inflicted by the worst downturn since the Great Depression,” said Alan Krueger, the chief White House economist, in a statement Friday morning.

In his statement, House Speaker John Boehner (R-Ohio) said, “Too many Americans are still out of work and Washington has too much debt,” and he advocated spending cuts and changes to entitlement programs.

The details of the report paint a solid but uninspiring picture. The unemployment rate was driven by a combination of more people entering the labor force, 192,000 of them, a gain not matched by the number of people reporting having a job. If that pattern were to continue, it would eventually push the jobless rate up even as employers create new positions. A broader measure of unemployment, which captures people working part time who want a full-time job and those who have given up looking for work out of frustration, was unchanged at 14.4 percent.

The job gains were relatively broad, with an 25,000 rise in manufacturing employment and a 30,000 gain in construction jobs. Those might, in part, reflect a ramp-up in activity to rebuild after Hurricane Sandy, but the increase in particular is a welcome change after months in which the sectors job tally hasn’t kept up with a rise in homebuilding.

The biggest job increases, as has often been the case in the past several years, were in education and health care, a sector that added 65,000 positions.

The retail sector cut 11,000 positions, but that only partly reversed steep October and November gains and likely reflects the odd seasonal patterns created by an early Thanksgiving. Government kept to its role as a drag on growth, shedding 13,000 positions.

There was good news about wages and hours worked. The average workweek for nonmanagerial employees ticked up to 34.5 hours, from 34.4, and average hourly earnings rose seven cents to $23.73. Overall, the index of aggregate weekly payrolls rose 0.7 percent.

Put together, it is not a report that should cause celebration in the streets for the millions of unemployed Americans, but it does reassure us that the expansion is on track.

The first major indicator of how the economy is performing in 2013 is due out Friday morning, and it will offer a window onto whether the job market is gaining momentum or stumbling in the new year.

Analysts are expecting the new Labor Department report, due out at 8:30 a.m., to show continuity. Forecasters expect to see 165,000 net new jobs added in January, up a bit from the 155,000 added in December. They expect the unemployment rate to be unchanged at 7.8 percent. Here are a few things to watch for in the details of the report.

Nicholas Kamm/AFP/Getty Images

Details of the household survey. The December report was generally solid, particularly in terms of what employers reported on the hiring and wage front. But the survey of households used to calculate the unemployment rate showed some weakness. While the overall unemployment rate was unchanged, the number of people reporting having jobs rose by a meager 28,000, and more people reported being unemployed. The ratio of employed people to the population ticked down a tenth of a percent to 58.6 percent. If the job market gained momentum to start 2013, one would hope to see those trends reverse.

Construction jobs, please! The housing sector is in a full-fledged rebound, with residential investment rising at a 15 percent annual rate in the fourth quarter. But it hasn’t translated thus far into large numbers of construction jobs. The sector lost 10,000 jobs in November and added 30,000 in December, and the question now is whether it will start to pick up on a scale commensurate with the gains in building activity.

Falling long-term unemployment. A welcome trend the last couple of months is a decline in the number of people who report having been unemployed for more than 27 weeks, or about six months. It fell by 233,000 in November and another 18,000 in December. While part of this decline is surely due to people leaving the labor force entirely rather than finding jobs, it could signal that at least some of those who have had the worst go of things are starting to find opportunities.

What about government? Government employment has been a drag on the job-growth numbers for most of the last three years, first as state and local governments slashed jobs and, increasingly, as the federal government tightens its belt. Government employment fell by 66,000 in October, 10,000 in November and 13,000 in December. Watch for what it does next.

Did the fiscal cliff matter? First, there were the hard-fought December negotiations over the fiscal cliff, which, at least according to initial evidence, didn’t cause any meaningful slowdown in hiring, investment or retail sales that month. Then in January, the fiscal cliff deal that was enacted ended a payroll tax holiday, resulting in lower after-tax paychecks and higher taxes on high-income households. Perhaps counteracting those negative forces, the resolution of the deal may have removed a shroud of uncertainty around the economy.

Even if there is an eventual economic impact from those events, it is unlikely to show up in the January jobs numbers; pay more attention to January retail sales data due out on Feb. 13. But the numbers out Friday morning will give evidence of something different: how strong the underlying pace of U.S. job growth was before those forces came to bear.

Friday morning, when the Labor Department puts out its February jobs report, it will be the latest window into the fundamental clash that is key to understanding the United States economy in 2013.

It pits on one hand the positive factors from the private sector driving the U.S. economy ahead, particularly a surging housing market but also rising stock prices and consumers who have made great progress in reducing their debt burdens. And on the other hand is a federal government that is tightening fiscal policy—through tax increases included in the fiscal cliff deal at the end of 2012, spending cuts in the debt ceiling deal of 2011, and now the sequester of immediate spending cuts that started March 1.

What will Friday’s big report show? (Nicholas Kamm/AFP/Getty Images)

The question for 2013 is which of these forces will prove more powerful; the answer will determine whether the U.S. economy can finally break out of its sluggish growth pattern of the past three years (or, conversely, if it slows down even more or even falls into recession).

In that sense, the February jobs report, and every other one in the coming months, is a referendum on this question of which force buffeting the economy is more powerful.

The good news is that all signs so far are pointing to a solid jobs market in February, despite the fiscal retrenchment. The Labor Department said Thursday that only 340,000 people filed new applications for unemployment insurance benefits last week. Over the last four weeks, the number has averaged 349,000—which is the lowest level since March 2008. That’s right: Half a decade ago.

Payroll processing firm ADP said Wednesday that private employers added 198,000 jobs in February and revised up its January estimate to 215,000. If the official government numbers out Friday match those levels, it will be a positive surprise.

Analysts are expecting the Labor Department numbers to show 163,000 net jobs added in February, little changed from the 157,000 reported in January. The unemployment rate is forecast to remain unchanged at 7.9 percent.

The February report will not reflect the direct effects of sequestration, which didn’t go into effect until March 1. But if government agencies and contractors held back on hiring in February in anticipation of the sequester going into effect, it could show up in weakness in a handful employment categories. Federal government employment excluding the post office has already been on a downward trend, shedding 4,400 jobs in January. Some categories of employment that include many private-sector  government contractors could start to see downward pressure as well, including “management and technical consulting services,” (which contributed 11,500 new jobs in January).

Similarly, retailers have reported that by February they were starting to feel the pinch from the 2 percentage point increase in the payroll tax that went into effect Jan. 1. If that also led them to cut back on workers, then there could be a reversal of the 32,600 jobs that the retail sector added  in January.

That’s the bad news about the ways that the age of austerity might be evident in the new jobs numbers. On the flip side, the strengthening in the private sector could come through as well. That would be most evident in construction employment, which notched a nice 28,000 gain in January and has a recovering housing market at its back. The housing rebound could also show up in categories like wood products manufacturing (somebody has to make all that lumber from which houses are built, and the sector added 900 jobs in January) and real estate (somebody has to sell the houses once they’re built—and that sector added 5,000 jobs).

We may have to wait to see just what economic damage is done by the sequester. But the big release Friday morning will give a sense of what, in this battle over the future of the economy, is winning.

The latest report on the state of the U.S. job market offered good news all around, the best reading in months on the state of the economy.

Jobs? There were 236,000 more of them on U.S. employers’ payrolls in February than in January. The unemployment rate? Down to 7.7 percent, from 7.9 percent. Wages? Private-sector pay rose 0.6 percent as people both worked more hours and at a higher hourly wage.

The details of the Labor Department’s report, released Friday, are not uniformly rose-colored. For example, part of the decline in unemployment was caused by the labor force shrinking and people no longer looking for work. And the numbers cover a time before the automatic government spending cuts known as the sequester took effect, which will have hard-to-predict impacts on the numbers for March and beyond.

But overall, it was a sign that the pieces could be in place for the U.S. economy to finally jump into a faster gear after nearly four long, slow slogging years out of recession.

“It’s an outstanding report,” said Craig Alexander, chief economist at TD Bank Group. “Not only are the headlines good but the details are good as well. You very quickly run out of superlatives in this payroll report.”

The stock market was up only slightly Friday, as investors were both relieved to see positive economic signs but assumed that good economic news could mean that Federal Reserve easing efforts will end sooner than they would if the news had been bad. The Standard & Poor’s 500 stock index was up 0.1 pecent at 10:20 a.m., and the interest rate demanded on 10 year U.S. Treasury bonds was up to 2.04 percent, from 1.99 percent Thursday.

The numbers offer ample support for the idea that some of the headwinds that have held the economy back since the technical end of the recession in mid-2009 are finally abating. The construction sector added a whopping 48,000 jobs, the most in a single month since March 2007. That is a sign that the housing market is finally surging enough to start to put construction laborers back to work.

And the American consumer, having made progress reducing debt burdens over the last several years and benefiting from higher prices in the stock market, apparently kept spending enough that retailers added 23,700 jobs. That despite an increase in payroll taxes Jan. 1 that economists have feared could wallop consumer spending.

Interactive: Key jobs statistics

A third major area for job creation was professional and business services, which added 73,000 jobs, with the strongest gains in a category that includes workers for temporary employment services; that could presage more improvement in the private sector to come, as companies often bring on temporary workers before adding to their permanent staff.

The data show a continued schism between the private sector, which is growing nicely, and government, which is still shrinking its employment level — even before the sequester took effect. The federal government excluding the post office shed 4,200 jobs in February, state governments cut 8,000 jobs, and local governments cut 2,000.

Robert Dye, chief economist of Comerica bank noted that auto sales and home sales data are both pointing toward economic growth, suggesting the private sector is so far powering through despite tighter fiscal policy. “If we can keep the labor market momentum up for the next few critical months, as fiscal tightening continues, many other good things will happen,” Dye said in a research note. “Solid hiring is the antidote to fiscal tightening. We got a dose of the antidote in February. More is needed.”

Weigh in: If you’re job-hunting, does the latest report make you feel more optimistic?

Neil and I discuss today’s surprisingly good jobs report, whether it’ll keep up now that the sequester has taken effect, and why state and local governments are losing so many jobs:

Economic data for March pointed pretty consistently to one idea: That we’re in the spring doldrums, with yet another spurt of weak growth underway. The first major data point for April comes out Friday morning, and will provide crucial evidence of whether this is just a routine soft patch of the variety that have happened a couple of times annually throughout these four years of weak recovery, or something more troubling.

Forecasters expect the April jobs report, due out at 8:30 a.m., to provide evidence that things were not nearly as weak as the March numbers suggested. The consensus forecast is that the nation added 140,000 positions in April, though even that would be a step back from the average of 220,000 a month during the November through February period. Analysts expect the unemployment rate to be unchanged at 7.6 percent.

(Nicholas Kamm/AFP/Getty Images)

If that forecast, or something close to it, matched the actual numbers it would be evidence for the “soft patch” theory of the economy, a reason to take a deep breath and appreciate that no major slump is underway. A major disappointment, coupled with the other mediocre-to-bad data of the last several weeks, would suggest that the tightening of federal purse strings are starting to have an uncomfortably large impact.

The sense of uncertainty over the true underlying pace of economic growth is embedded in the Federal Reserve’s policy statement Wednesday, in which the central bank more or less acknowledged that it could either increase or decrease the rate of its bond purchases as its next change in policy.

The most recent economic data has displayed decidedly mixed signals. On Thursday, the Labor Department said that only 324,000 people filed new claims for unemployment insurance benefits last week, the lowest in five years. The Institute for Supply Management’s survey of manufacturers for April was a notch better than expected. But construction spending fell by a whopping 1.7 percent in March, and a survey by the Dallas Federal Reserve Bank of the manufacturing sector in Texas and surrounding states plummeted.

The April numbers will more fully reflect the impact of the government’s sequestration spending cuts than the March numbers did; those budget cuts may not have put downward pressure on hiring immediately, but may be more pronounced as the year progresses. In Friday’s report, pay particular attention to the breakdown of jobs added or lost in different employment categories to judge how much of a factor federal cutbacks may have been.

For example, if there is a major decline in federal government employment or uncommonly weak growth in professional and business service jobs (a category that includes many government contractors), it would be evidence that the sequester is packing a punch.

Either way, the latest numbers will give our best sense to date of whether March was a blip, or the start of a dangerous trend.

We economics writers can be an excitable bunch, eager to draw big conclusions from thin data. Huge monthly job gains of more than 200,000 like we saw this winter? The economy is finally achieving liftoff! A piddling 88,000 added in March? It’s falling off a cliff!

But there’s been a surprisingly consistent theme through the last three years: Any attempt to divine a meaningful change in the pace of the expansion has turned out to be wrong. There have been no double dips into recession, despite a clockwork-like speculation that there will be whenever a couple of months of soft data come out. There has been no speedup into a full-throated growth that would bring us back to a strong economy.

Steady eddy. (Nicholas Kamm/AFP/Getty Images)

In April, the United States added 165,000 jobs. Over the last 12 months, it has averaged 168,000 a month. Over the last 24 months, it has averaged 184,000. Over the last 36 months, it has averaged 162,000. For three years straight, any variation from the basic trend has been offset by a variation in the other direction in the following months.

Similarly, the unemployment rate has been moving downward glacially but consistently. This time three years ago, the jobless rate was 9.9 percent, which fell to 9 percent in April 2011, 8.1 percent in April 2012, and now 7.5 percent in April 2013. Part of the drop is due to people leaving the labor force entirely, and the pace of decline is too slow if you are among the 12 million unemployed. But it is also steady.

These are exactly the trends you would expect to see in an economy expanding at a 1.5 percent to 2 percent annual rate, which is what has been happening. There is no disconnect between what the jobs surveys are telling us about the recovery and what other surveys are showing.

What to make of it all? This kind of growth cannot boost the economy toward full employment in the near future. If this keeps up, no one will be singing “Happy Days Are Here Again” anytime soon. If you’re living in Britain or most of continental Europe or Japan, the U.S. track record is one to envy, but we Americans have higher expectations for how our economy ought to perform.

Second, the fact that the overall job growth numbers have been so stable does not mean there isn’t some real churn in the U.S. workforce. In the earliest phase of the recovery, manufacturing jobs were a major driver of job creation, but that didn’t turn out to be a longer-term trend; it was only a partial reversal of the steep declines of the recession. Now, job creation is entirely confined to the services sector: Last month, manufacturing had no net change in employment, construction lost 6,000 jobs, and even mining and logging was a net negative.

Government employment, meanwhile, stayed on its long swoon. There were declines in federal government jobs excluding the post office (down 4,900 positions), the postal service (down 3,500), in state government (down 1,000) and in local government (down 2,000). Those numbers aren’t huge in a country of 160 million workers, but they are a  sign that austerity is biting at all levels of government.

That leaves one sector to fuel the job creation train: private-sector services. In April, there were strong gains in leisure and hospitality, retail jobs and professional and business services. And health care has been a mainstay of the expansion.

This isn’t a good economy. By a lot of measures it’s terrible. Still, we should note what we have achieved: a durable kind of recovery that, if it can go for several more years, will eventually get us out of the muck. But it is also slow enough that the human toll of the crisis will be long and enormous.

Happy jobs day! The Labor Department announced Friday that the U.S. economy added 175,000 jobs in May and that the unemployment rate ticked up to 7.6 percent, from 7.5 percent in April. Here’s a rundown of the what you need to know about the latest numbers, the reaction from markets and the Fed, and more.

AFP PHOTO/Brendan SMIALOWSKIBRENDAN SMIALOWSKI/AFP/Getty Images

The nice thing about the latest jobs number is how very normal they seem.

The nation added 175,000 jobs in May, which is right on track with the trend over the past year (average monthly jobs gained: 172,000). The May job gains were a bit better than expected, but that was offset precisely by revisions to previous months that subtracted from earlier reported gains. The jobs report giveth and the jobs report taketh away.

The labor force, it’s a shrinking (until May, that is).

The unemployment rate, meanwhile, ticked up to 7.6 percent, but that was mainly for a good reason: More than 400,000 people joined the labor force, and there weren’t enough new jobs to accommodate all those new entrants.

These are all subtle details, though. This is the big point to take away: Whatever you thought about the U.S. economy Thursday, the same should be true Friday. Nothing in this should radically reshape anyone’s theory of how the economy is doing.  And that is good news.

After more than five years on an economic roller coaster, what we need is steady, month-after-month gains in jobs that over time repair the broken U.S. labor market. It would be great if it were faster. But the most important thing is that it is continuing. If it keeps continuing for a few more years, we’ll make it out of our economic doldrums; a decade later than we might have hoped, but it beats the alternative. Just ask Spain.

That doesn’t mean there are no dark clouds. The jobs being added are concentrated to an unfortunate degree in low-paying sectors. Restaurants, bars and caterers added 38,000 jobs in May; 26,000 jobs were added by temporary help firms. It is not a great sign that fully 37 percent of job creation could be attributed to these low-paying sectors.

That also helps explain why wage growth has been in a rut; that is exactly what is to be expected if low-paying employers are adding jobs faster than high-paying ones. Sure enough, average hourly earnings for private-sector employees were essentially unchanged at $23.89; economists had expected an 0.2 percent gain. Over the past year, average hourly earnings are up 2 percent, which only barely keeps up with inflation. Yes, jobs are being added, but for the fifth straight year American workers are not seeing any real increase in their pay.

So does that add up to a good news story or a bad news story? It’s somewhat in the eye of the beholder. We won’t see meaningful wage increases until we are back closer to full employment, with an unemployment rate more in the 5 to 6 percent range than its current 7.6 percent. It is, after all, only when employers genuinely have to fear that their workers will jump ship that those workers will be able to demand raises.

But the math behind the increase in the jobless rate in May shows why getting to that tighter labor market may be a slow road yet. The proportion of Americans who are in the labor force has been falling — from 66.1 percent five years ago to 63.4 percent last month. If the rate were to rise back to its 2008 levels, another 6.6 million people would be joining the labor force, creating further downward pressure on wages. (It is hard to imagine that labor force participation will return to those old levels, however, as part of the decline was caused by demographic factors and some of those who dropped out will presumably never return to the workforce).

So this is the job market we have right now: Employers are adding jobs at a steady, persistent clip. But it is in low-wage sectors that the job creation is strongest. And there will remain downward pressure on wages as long as unemployment is high. And unemployment will probably be slow to come down as a better jobs picture coaxes people who had dropped out of the job market to rejoin it.

Does all that amount to good news or bad? By the standards of the 1990s or even the first seven years of the 2000s, it’s downright terrible. But by the standards we’ve become accustomed to since 2007, well, it’s a step in the right direction.

(Nicholas Kamm/AFP/Getty Images)

The U.S. economy added 195,000 jobs in June, according to a Labor Department report released Friday morning. The nation’s unemployment rate was at 7.6 percent. Follow our rapid-fire analysis of the report here.

Not to be the guy blaring “Fortunate Son” at your Fourth of July picnic, but you know that great jobs report today? There’s an ugly little trend hidden in it: America looks like it’s back to laying off factory workers.

The economy has gained jobs at a lukewarm-but-steady pace over the last year, a pace that heated up a bit with Friday’s news that 207,000 net private-sector jobs were created in June. But manufacturing employment fell by 6,000 jobs in June — the fourth straight month of job losses in the sector. For the calendar year, factory employment is basically flat, even as overall employment is up:

Other economic data that measure factory output, not just employment, have looked weak lately. So has export growth.

Who said manufacturing would lead recovery? Manuf jobs just +0.2% YoY and just 8.80% of overall jobs — lowest share ever.

— Jed Kolko, Trulia chief economist, (@JedKolko) July 5, 2013

A couple of years ago President Obama was crowing about an American manufacturing renaissance, and the numbers seemed to support him. Factory job growth was an early driver of the recovery from recession. Now, Obama is taking increasing heat from liberal groups that want him to adopt more protectionist trade policies.

Politics aside, the big worry here is that the early days of the recovery look more and more like an outlier, a correction to companies laying off too many workers in the recession  rather than a more sustained reversal of the decades-long drop in factory employment. The plateau of the last year looks awfully familiar, historically, and it’s not usually followed by something good: