Why the shutdown didn’t tank the January jobs report

  • Demonstrators hold a banner during a protest against the closure of five North America General Motors Co. assembly plants, on Friday, Jan. 18, 2019. MUST CREDIT: Bloomberg photo by Anthony Lanzilote

The Washington Post
Saturday, February 02, 2019

There were a lot of gasps and “wow!” exclamations when the U.S. Labor Department announced Friday that the economy added 304,000 jobs in January. That was the best month of job gains in almost three years, and it occurred in a month when the federal government was partially shut down and hundreds of thousands of federal employees went without pay.

Some of the best forecasters in the country had predicted job gains of about 170,000, a substantially lower figure. So how did this extremely good jobs report happen?

Here’s a brief rundown on how the shutdown did and did not affect the January unemployment report:

The shutdown had no impact on the 304,000 jobs number

This figure comes from a survey in which the Labor Department asks employers (both private sector and government) how many people were on the payroll for the pay period that includes Jan. 12. The furloughed federal workers were still on the payroll that day, even though they were not getting paid. The Labor Department still counted them as employed since the workers were going to be paid eventually.

This whole process is known as the “establishment survey,” and the Labor Department has used this methodology for previous shutdowns, which also showed no impact on monthly job gains. (Economist Martha Gimbel from Indeed.com wrote a great explainer of what happened during past shutdowns, including in 2013.)

The shutdown affected the unemployment rate

The unemployment rate rose in January to 40 percent (up from 3.9 percent in December), and that’s largely because of the shutdown. The Labor Department calculates the unemployment rate by using a different survey — known as the household survey — where they literally knock on the doors of some people’s homes and ask how many adults are employed and how many are unemployed.

Furloughed workers were supposed to be categorized as “unemployed on temporary layoff,” but the Labor Department has to use whatever language the person answering the door says. So some furloughed workers classified themselves as “employed” while others said (correctly) that they were “unemployed temporarily.”

The Labor Department said that some furloughed federal workers almost certainly misclassified themselves. The result is the unemployment rate probably should have been even higher — maybe 4.1 percent.

“If the federal workers who were recorded as employed but absent from work had been classified as unemployed on temporary layoff, the overall unemployment rate would have been slightly higher than reported,” the Labor Department wrote in a note at the bottom of the January jobs report.

The shutdown likely caused a jump in Americans working part time

Interestingly, there was a dramatic spike in the number of Americans working part-time jobs in January. This means they were working part time but wanted full-time work. The Labor Department reported that 490,000 more people were working part-time in January but wanted full-time work, and the department noted that this “may reflect the impact of the partial federal government shutdown.”

This metric is closely watched as a sign of the health of the labor market, since people who want to work full-time should be able to find jobs in such a “hot” market. It is calculated from the household survey (the one where the Labor Department goes door-to-door).

“Blockbuster job number distorted by workers forced to accept part time employment to make ends meet during government shutdown. A whopping half million more people forced into part time instead of full time for economic reasons in January,” tweeted Diane Swonk, chief economist at Grant Thornton.

The takeaway

The shutdown had a real impact on 800,000 federal workers, and it did cause the unemployment rate to rise, but the economy still added 304,000 jobs because the private sector continues to hire at a strong pace (8,000 jobs came from the public sector, but the bulk came from private employers).