Unemployment Rate Likely Lower Than Consensus

by Dennis Jacobe, Chief Economist

Gallup’s model suggests April unemployment rate likely below 8.9% consensus

PRINCETON, NJ -- Gallup's projection, based on its Net New Hiring Index, suggests the April 2009 unemployment rate is likely to be in the 8.5% to 8.8% range when the Labor Department reports it on Friday. Gallup's Index showed substantial improvement around the Easter holiday, suggesting a slowdown in the surging unemployment rate of 2009 characterized by a two-percentage-point increase seen between September 2008 and February 2009.


Unemployment Rate Projections

Gallup's unemployment rate model -- based on its four-week average Net New Hiring measure (the percentage of employees saying their companies are hiring minus the percentage saying their companies are letting people go) -- was -5 in April. This is essentially unchanged from -4 in March and -6 in February. All three scores are substantially worse than the +22 score in April 2008.

The unemployment rate has been increasing recently, while Gallup's Net New Hiring measure has been negative but also stable. Statistical models based on the relationship between these two indicators show that no change in the Net New Hiring measure predicts continued increases in the unemployment rate. This is also consistent with the U.S. government's report on Thursday that continuing jobless claims hit 6.35 million -- another new record high.

The monthly trend in Gallup's Net New Hiring measure is inversely related to the U.S. unemployment rate. Based on its 16-month history, the measure provides Gallup with a better than 8-in-10 chance of accurately estimating the unemployment rate's future direction.


Each month, Gallup conducts more than 8,000 interviews with U.S. employees to ascertain their perceptions of the job situation at their companies. Of course, many factors make such unemployment rate projections difficult, with probably the most important of these being the potential for job seekers to get discouraged and stop looking for work (and thus not be included in the government's official unemployment rate). As the job situation worsens, the size of the labor force often shrinks, reducing the percentage reported as unemployed. Holidays add to the uncertainty as job decisions are often delayed around such times tending to further distort employment trends.

Job Creation

Already this week, Wall Street is celebrating the improving job situation as reflected by the ADP Employer Services report showing private companies cut jobs by 491,000 in April. This number represents the lowest job loss since last October. Today's initial jobless claims report showing a decrease of 34,000 to 601,000 in the week ending May 2 further enhances the improving job situation.

Gallup's Net New Hiring measure also showed significant improvement for the two weeks following Easter anticipating the recent government jobs reports. This improvement also provides the basis for Gallup's estimate that the increase in unemployment for April is likely to be less than the 8.9% consensus. How much, if any, of this improvement was because of the Easter holiday is unclear, but during the most recent week of measurement, scores on Gallup's Net New Hiring gave up this improvement.

Regardless, the key to economic recovery is likely to lie with job creation in the months ahead. For improved consumer optimism to translate into increased consumer spending, it is essential that consumers feel more secure in their jobs and their personal balance sheets. An economy creating jobs is the way to achieve this consumer environment.

In this regard, it is noteworthy that employee-reported hiring by U.S. companies remains weak, averaging 23% every month this year including April -- down 15 points from the 38% hiring rate of the same month a year ago. Despite all the celebration about what seems like the end of the economic plunge, real improvement in the economy will require an improvement in the percentage of U.S. companies hiring employees. In turn, this suggests that national economic policies should increasingly focus on how to stimulate new job creation and the small businesses that have traditionally been at the core of the job creation process. In this regard, on a daily and weekly basis, Gallup's Net New Hiring Index will continue to monitor the nation's success at addressing the job creation process.

Survey Methods

Gallup's hiring measure is based on aggregated interviews with a nationally representative sample of more than 8,000 U.S. workers each month. Gallup asks current full- and part-time employees whether their employers are hiring new people and expanding the size of their workforces, not changing the size of their workforces, or letting people go and reducing the size of their workforces. Gallup's hiring measure is computed by subtracting the "letting go and reducing" percentage from the "hiring and expanding" percentage. The assumption is that employees across the country have a good feel for what's happening in their companies, and that these insider perceptions can yield a meaningful indication of the nation's job situation. For results based on these samples, the maximum margin of sampling error is ±3 percentage points.

Interviews are conducted with respondents on landline telephones (for respondents with a landline telephone) and cellular phones (for respondents who are cell phone only).

In addition to sampling error, question wording and practical difficulties in conducting surveys can introduce error or bias into the findings of public opinion polls.

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