What’s behind Oregon’s 4.5 to 5.2% jobless rate

By Josh Lehner
Oregon Office of Economic Analysis Blog

The unemployment rate in Oregon has increased from 4.5% to 5.2% in the past two months. What is going on here? Well, regular readers know it always important to take real-time economic data with a grain of salt, but the so-called household survey from which the unemployment rate is calculated has been particularly noisy in recent years. Let’s take a quick stroll down memory lane.

Exactly a year ago we wrote the following in our September 2015 forecast document, released in August 2015 (PDF page 11).

As our office warned three months ago, the large declines in the unemployment rate to start the year likely overstated the strength in the labor market. As the unemployment rate has increased over the summer, it has now returned to its post Great Recession trend, and likely understates the improvements in the labor market.

And last quarter we wrote the following. (Also PDF page 11.)

…The pattern of unemployment rate changes does not likely reflect the overall pattern of growth in the Oregon economy…While there is no question Oregon’s economy continues to improve, future revisions may reveal a somewhat different, and smoother path for the unemployment rate.

So once again we find ourselves with a plunging unemployment rate early in the year, only for the summer months to pull it back up, more or less to the post Great Recession trend. The month to month fluctuations can be noisy but the overall improvements are certainly real and noticeable.


For the record there are zero conspiracy theories here. The underlying samples used in these surveys are small. The unemployment rate, labor force participation rate and the like are derived from responses by about 1,000 Oregon households each month. (Update: As Guy Tauer points out in the comments, besides the sample data these calculations also pull in other administrative data like UI claims, payroll employment and the like. Thanks Guy!) The 2010 Census pegged the total number of households in Oregon at more than 1.5 million and that was six years ago. Samples can be tricky and noisy. That is what is going on here by all accounts.

As for how this impacts our office’s forecast, in short it does not have much of an impact. Our office’s baseline outlook calls for Oregon’s longer-run, or steady-state unemployment rate to be about 5.4%. So our forecasts in the past year or two have actually had an increase in the unemployment rate built into them.

The reason is our original Return to Normal Labor Market Dynamics work. First come more job opportunities — employment growth continues to outpace population growth. Second wages rise as businesses must compete on price to attract and retain the best workers in a tighter labor market. And third, individuals return to the labor force in search of these more-plentiful and better-paying jobs. Right now Oregon’s labor market has returned to these normal types of dynamics seen during expansions, even if it took a few years following the fallout of the Great Recession.

One potential downside to the noisy data is the labor force participation rate itself. While it has turned the corner, the gains seen so far in 2016 have been particularly strong. This big improvement, like the noisy unemployment rate, has been in the unrevised or unbenchmarked data. It is certainly possible that future revisions will tamp down the participation rate gains seen in recent months. However this is likely a noisy data issue. Our office’s forecast, shown below for comparison purposes, calls for LFPR gains as the strong economy continues. A larger share of the population really is working and looking for work. Now the expansion cannot fully overcome the demographics over the medium and longer term but it can when we are adding jobs at a 3% or higher rate like we are today.


Where the noisy household survey data will impact our office’s work is in our Total Employment Gap estimates. The rising unemployment rate and flattening LFPR in the past couple of months does indicate the gap is slightly larger in the current data than we had thought just a couple months ago. While monthly data can be noisy, the Oregon economy is still doing well and we are on track to reach full employment in the near future. Furthermore our office does expect job growth to slow in the future after the economy reaches full employment or shortly thereafter. Right now we have the slowdown happening in 2017 but this is an open question that we regularly discuss with our advisors. Right now none of them are seeing any particular weakness in their individual industries or regions of the state.

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