The Rose Colored Employment Report

Source: Forbes

Last Friday, the labor department reported an increase in payroll employment of 204,000 in October along with upward revisions in the previous two months, and the stock market celebrated. The Dow rose 167.80 points on Friday, or 1.08 percent. This good news came from the Labor Department’s establishment survey.

Its household survey was another story. It showed employment dropping a whopping 735,000, even though the number of unemployed increased by only 17,000, and the unemployment rate increasing to 7.3 percent. How can employment go down 735,000 and unemployment go up by only 17,000? Most of the answer was a 720,000 decline in the civilian labor force. The labor force participation rate-the percentage of the labor force employed-fell 0.4 percent in October to a modern record low. Also at a recent record low was the employment population ration, which declined by 0.3 percentage points to 58.3 percent.

With such horrific news from the household survey, one has to wonder why the markets ignored it in favor of the good news in the establishment payroll survey. I can only conclude that we read the news selectively to support our predilections. I’m guilty as well. I like a rise in the stock market as much as anybody.