Running Numbers.(The Talk of the Town)(employment)

American investors began 2008 with a simple New Year's resolution: sell. The result was the worst start of a year in the S. & P. 500's history, with the index falling more than five per cent over the first five days of trading. Explaining market moves is usually a mug's game, but it's clear that one of the main causes of the sell-off was this month's labor-market report, which showed job growth in December at a virtual standstill and unemployment jumping to five per cent. For many investors, that news seemed to confirm their deepest anxiety: a recession--or at least a stagnation--is at hand.

This may well be so, but the decisiveness of Wall Street's response to the numbers was still puzzling, since employment statistics are notoriously muddy. To begin with, the two numbers that the government reports each month--one measuring the unemployment rate and the other job growth--are based on very different surveys, and they frequently offer conflicting snapshots of the economy. The employment, or household, survey looks at sixty thousand households, and last month it saw a sharp increase in the number of people without jobs. The payroll report, by contrast, surveys four hundred thousand business and government establishments, and last month it said that the economy actually added eighteen thousand new jobs. Furthermore, both estimates are significantly imprecise: the payroll report has a sampling error of as much as plus or minus a hundred thousand jobs (which means that, instead of gaining eighteen thousand jobs last month, we may have lost eighty-two thousand), while the household survey's error margin is even bigger, at plus or minus four hundred thousand jobs. The payroll numbers are also subject to big revisions: in September, the government reported that the economy had lost four thousand jobs the previous month, but a later update said that eighty-nine thousand jobs had been created.

This uncertainty has made job numbers a favorite target of pundits, who dismiss them as "meaningless" and "irrelevant," and accuse the Bureau of Labor Statistics of numerical flimflammery. The payroll report has also become a flash point for political arguments. A few years ago, when the report showed the creation of surprisingly few jobs despite brisk economic growth, Republicans attacked it for missing the boom in self-employment and new-business growth, insisting that the household survey, which showed very low unemployment, was a better indicator.

Flawed as they are, though, the employment numbers represent a dramatic and valuable economic innovation. The idea that the government can and should give the public a reliable picture of the economy is a surprisingly recent one. It wasn't until the Great Depression that the government began calculating a national employment rate, and it's only in the postwar era that employment data have been ...