The Bureau of Labor Statistics (BLS) reported this morning that the economy added 162,000 jobs in March and that unemployment held steady at 9.7%. (See the above link to the BLS report.)
However, since the onset of the Great Recession, the government steadily removed workers from the work force, “banking” them in an unemployment la-la land, with the explanation that they simply dropped out of the labor force. More recently, in the last three months, they’ve begun the process of adding them back in. By doing so, the BLS effectively put a lid on unemployment at 10%. This is why Treasury Secretary Tim Geithner has been saying that unemployment will remain unacceptably high for a long time. Even though the economy may be adding jobs now, they have a lot of “banked” workers that they need to re-add to the calculation.
In fact, I had to laugh when I saw the BLS’s calculation of the unemployment rate this month. (The following is a spreadsheet that presents the actual figures used to calculate unemployment, together with my own figures which are based on the assumption that the work force remains a constant percentage of the total population.):
If you’ll look at the March figure for “Civilian Labor Force” – 153,910 (thousands) – you’ll see that it yields an unemployment rate of 9.749%, one one-thousandth of a percent below the level where rounding to one decimal point would have made the figure 9.8%. If the March figure for the civilian labor force was increased by only 505 workers to 153,910.505 (thousands), the report would have shown a jump in unemployment from 9.7% to 9.8%, something that would have turned an otherwise positive report into a negative. Now tell me that the BLS isn’t manipulating this figure and reintroducing “banked” workers at a measured pace!
A much more accurate accounting holds the number of workers at a fixed percentage of the total population. By that measure, unemployment now stands at 11.4%, a reduction of 0.1% from February.
Interestingly, U6 unemployment, the broader measure that includes part-time and discouraged workers, actually rose in March to 16.9%, the second increase in a row.
See the following charts for a more complete graphical depiction of what’s happening in the labor market:
Unemployment Chart Labor Force & Employment Level Unemployed Americans
The BLS breaks down the growth in jobs in March (162,000) as follows:
- Census Workers – 48,000
- Temp Services – 40,000
- Health Care – 27,000
- Manufacturing – 17,000
- Construction – 15,000
- Mining – 8,000
- Transportation & Warehousing – no change
- Leisure & Hospitality – no change
- Retail Trade – no change
- Wholesale Trade – no change
- Financial Activities – (21,000 jobs lost)
- Information Industry – (12,000 jobs lost)
(The figures don’t add up to 162,000 jobs. The BLS report is just highlighting the most significant changes.)
The bad news here is that all of the people hired in the first category will be laid off again in June. Take away that category and the growth in jobs is insufficient to prevent unemployment from rising, given the rate of increase in the labor force and the population in general. And the second category is temp, part-time work.
We’re sure to see the jump in hiring in the health care field continue, following passage of the health care plan, which expands health coverage to an additional 30 million people. It will be interesting to see at what point policy-makers reconcile an explosion in employment in the health care field with the need to reduce health care costs. Something will have to give.
Rising employment in manufacturing is good news and corroborates other measures that have shown manufacturing on the rise for the past few months. But will it continue once inventories have been rebuilt? And will the balance of trade improve as the president has vowed, or will it worsen and shoot manufacturing in the head? Count me as a skeptic, since nothing concrete has been done to slow the pace of imports.
There are those – free trade policy advocates, primarily – who say that we can forget about manufacturing, that America has transitioned to a services and information economy. If so, the declines in employment in financial services and in the information industry don’t bode well.
The problem with all of this is that employment has been propped up by the Economic Recovery Act, and the spending under that program will be nearly finished by the end of this year. In fact, it can be argued that with a GDP of about $14 trillion and a federal budget deficit of $1.5 trillion, over 10% of our economy is the result of deficit spending. What will happen when the Economic Recovery Act (otherwise known as the “stimulus plan”) ends and as lawmakers come under intense pressure to reduce the federal deficit? The whole employment situation could quickly turn quite ugly again.
But, for the next few months, we’re sure to get a rosy picture and the administration will be encouraging us to let the good times roll.