Oopsie: Labor Department Underestimated Job Growth

Whups.

The Department of Labor said today that it had understated total employment by about 386,000 jobs from April 2011 to March 2012. In other words, the economy created an average of 194,000 new jobs each month during this period rather than 162,000, an increase of 32,000 new jobs per month. The revisions were the result of the annual re-calibration that the government performs each year.

These jobs numbers are closely watched and form the basis of many business plans and forecasts. They can have a significant effect on business and consumer confidence, and thus can influence economic growth.

In the Labor Department’s defense, calculating and estimating these sorts of numbers is very complex and difficult. Even so, inaccuracy can lead to costly policy mistakes or even influence elections.

When George H. W. Bush (the elder) was up for re-election in 1992, the U.S. was in the midst of a recession. In June 1992, the Labor Department announced that it had undercounted the job losses by 600,000, or about 33 percent. Thus, the original numbers had made the 1990-1992 recession appear to be much less severe than it actually was. While the department denied that the undercounting was politically motivated, Democrats seized on the new figures, and the economy and severity of the recession was one of the factors that led Bill Clinton to win the Presidency that year.

There is no reason to believe that either the initial undercounting or the actual revisions were politically-motivated in this instance. Let’s just hope that this indication that the economy has been doing better than we thought will lead to more confidence – and thus more growth – in the future.

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