A lot of people will see tomorrow's headlines and get really excited. The monthly jobs report issued by the Bureau of Labor Statistics (BLS) is expected to show 540,000 jobs added in May -- by far the largest jump in more than 10 years.
Ignore it. The overwhelming majority of these job gains are temporary hires from the Census Bureau's decennial census report, and almost all of them will reverse within the next three months.
Census hiring has been ramping up for months, but it really explodes in May. The finance blog Calculated Risk put together a nice graphic showing how Census hiring affects monthly payroll figures over its one-year campaign. Have a look:
Another notable point from this chart is how Census layoffs will squash jobs reports in the coming months -- especially June. Ignore those, too.
Well, maybe not totally ignore. But what's important here are normalized numbers. Census hiring and firing affects real people with real lives and real money, but these kinds of transitory blips can be irrelevant when judging where the economy is truly heading. In this case, if tomorrow's report meets expectations of 540,000 jobs created, and 417,000 came from the Census, then the normalized number is a gain of 123,000. That's what you should pay attention to.
What would that number mean? First, the economy needs to add about 100,000 jobs a month just to keep up with immigration and new entrants to the workforce from demographic trends. So even if the growth trend is 120,000-200,000 a month, the number of unemployed workers actually reentering the workforce can be far less than that. Second, more than 8 million jobs have been lost since the recession began. If the monthly rate retuned to a brisk pace of 250,000 job gains per month, it would still take more than four years to recapture those losses. Four years.
Still, you have to put this in perspective: Just more than a year ago, the economy was shedding 700,000-plus jobs a month. Even during the strong recovery years of 2005-2006, the average monthly job gain was 190,000. As bad as it still is, it's nearly night and day compared to where we were not long ago, and we're nearly back to a pace with which most of us were once content. In an interview yesterday, Warren Buffett noted that Berkshire Hathaway (NYSE: BRK-A ) (NYSE: BRK-B ) was "hiring every week." I'll cling to those small victories.