The August jobs report is a lot better than it looks. Here’s why (and why it may not last)

ECONOMIC REPORT

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Schools across the country are using remote learning in an effort to continue teaching during the coronavirus pandemic. The U.S. economy regained 1.4 million jobs in August.

The biggest and undoubtedly best news in U.S. jobs report for August was a huge increase in the number of people who said they went back to work.

Officially, the government said the economy regained 1.4 million jobs last month based on a survey of business establishments and places where people work. That was a touch better than Wall (DJIA) expected.

Read: U.S. regains 1.4 million jobs in August and unemployment drops to 8.4%

Yet a separate survey of American households indicated that a much larger 3.8 million people found employment in August. And some 2.8 million said they were no longer unemployed. The big moves help explain why the unemployment rate sank to 8.4% last month from 10.2% in July.

Why the disparity between the two surveys? Economists say it’s unclear.

The expiration of extra federal unemployment benefits at the end of July may have forced more people to return to work because they needed the money. The start of the school year could have played a large role. And the ongoing economic recovery and slow relaxation of coronavirus restrictions probably contributed, too.

Whatever the case, it was undeniably good news. It shows the economy continued to expand in August despite a spike in coronavirus cases earlier in the summer and the end of federal aid, both of which had been expected to act as a bigger drag on the recovery.

“This was a strong report that shows the recovery remains on track,” said Joel Naroff of Naroff Economic Advisors. “The labor market has come back faster than expected and we are seeing improvement in all segments of the economy and the workforce.”

The big question is, is it real?

To help answer that question, it helps to understand the difference between the establishment and household surveys.

Each month the Bureau of Labor Statistics surveys 145,000 businesses or government agencies that represent almost 700,000 work sites around the country. From these surveys the BLS determines how many people are working and how many new jobs are created.

Read: Initial jobless claims fall to new pandemic low of 881,000 — but there’s a big catch

The large sample size makes the establishment survey quite accurate. Eventually the survey results are matched up with IRS employment records and further fine-tuned.

The household survey, for its part, is based on questionnaires sent to 60,000 households each month. Individuals are asked whether they are employed, recently lost a job or are seeking work.

The household survey has also proven accurate over time, but its smaller sample size makes it less precise in the short run. Sometimes there are inexplicably large swings from one month to the next that make it less reliable as a bellwether for the labor market.

The only way to know for sure if the August household-survey results are as good as they look is if further progress in shown in the next few months.

If new hiring remains above 1 million a month, the number of people going back to work steadily increases and the ranks of the unemployed continue to decline, it would show the economy is far more resilient than many had assumed.

Read: Economy softened in August, Fed says, as some temporary layoffs turn permanent

That’s a big if, though. The end of federal aid could cause consumer spending to taper off later in the year or force companies that have lost federal support to lay off more workers. A spate of companies such as American Airlines (AAL) United (UAL) and MGM Resorts (MGM) have announced new furloughs and layoffs with their businesses still in a deep slump.

“The end of most pandemic aid is one wrinkle to closely watch going forward,” said chief economist Chris Low of FHN Financial, who called the August jobs report a strong one.

Video: US unemployment rate falls to 8.4% even as hiring slows (Associated Press)