11/08/2013 11:05 am ET Updated Dec 06, 2017

Here's How Much The Government Shutdown Messed Up The Jobs Report

October's jobs report was sorta confusing, wasn't it? We had a big jump in jobs, but unemployment rose, too. The Labor Department declared the government shutdown meant federal workers were employed, but also not employed, like Schrödinger's Cat.

What the hell is going on here? Have the people who built Obamacare's busted website started doing the job reports, too? And could it even be possible that the strong jobs numbers mean the shutdown did not hurt the economy at all, but maybe even helped it, a Republican talking point brayed early and often on CNBC Friday morning?

As to that last question, no: That idea is just pure bullshit. It's impossible to make any definitive conclusions about the long-term economic effects of the shutdown from this one report. It will be revised heavily in the months to come and, as I'll explain in a second, the shutdown put the numbers in a shredder, leaving them hopelessly difficult to interpret.

The evidence is far stronger that the shutdown, and all of the other many budget fights Republicans have caused in the past four years, have hurt the economy, leaving it in far worse shape than it should be.

And it screwed up the October jobs numbers, too, in many ways -- including making the unemployment rate 7.3 percent instead of 7 percent, where it should have been, according to economists and the Labor Department. Here's how:

The most important thing to remember is that the jobs report we get and obsess about every month is based on two different government surveys, one of households and the other of businesses. These two surveys often produce strikingly different pictures of the job market. That's because measuring our massive economy is hard, and the surveys use economic models, and economic models suck. That's why we see these numbers revised over and over again.

This month, in trying to measure the effects of the pointless and destructive government shutdown in October, the household survey decided to count furloughed federal workers as unemployed by reason of a temporary layoff. In the chart below you can see the big jump in October in the percentage of unemployed people who were only sidelined temporarily. (Story continues after chart.)

temp layoffs

This jump in temporary unemployment helped push the total unemployment rate up to 7.3 percent from 7.2 percent in September. Ian Lyngen, bond-market strategist at CRT Capital in Stamford, Conn., estimates this temporary layoff effect added 0.3 percentage points to the unemployment rate. In other words, the "clean" unemployment rate without the government shutdown would have been 7 percent, which is a lot better than 7.3 percent, because math.

Now, at the same time, there was an absolutely huge drop in the number of people working or looking for work last month. That's not good! The labor-force participation rate, the percentage of the working-age population in the job market, tumbled to 62.8 percent from 63.2 percent the month before, the lowest since 1978. Again, not good!

Low labor-force participation artificially lowers the unemployment rate because it means people you'd ordinarily count as unemployed have just dropped out altogether and aren't counted. It's a depressing problem that's been afflicting us for a while. So that nice, low, "clean" unemployment rate is probably too low.

But wait, a lot of those people dropping out of the labor force in October were probably government workers, too, yet another messy effect of the government shutdown. So maybe the "clean" unemployment rate is low after all. We should probably just wait 'til next month to find out for sure.

Meanwhile, the government's separate survey of businesses was shockingly strong in October, showing 204,000 new jobs added to nonfarm payrolls -- economists had expected only 120,000. That's partly because all of those furloughed federal workers that were unemployed in the household survey were counted in this survey as full-fledged job-havers all month. That explains the seeming disconnect between the strongish payroll numbers and the higher unemployment rate.



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