The Bureau of Labor Statistics (BLS) announced this morning that the economy added 209,000 non-farm jobs in July (according to the establishment survey) while the unemployment rate ticked up to 6.2% (according to the household survey). Regarding the latter figure, the employment level rose by 131,000 while the civilian work force grew by 329,000. In reality, population growth figures indicate that the labor force actually grew by 122,000. The result is that per capita employment (or employment to population ratio) held steady at the depressed level of 45.9%. Here’s the chart: Per Capita Employment.
The jobs picture has definitely brightened in the past few years, but not as much as we’re led to believe. While official BLS figures would have us believe that unemployment has fallen to 6.2% from a recession-high of 9.9% in April of 2010, those figures are skewed lower by claims that people have simply dropped out of the work force. A more accurate reading, one that grows the labor force in proportion to the growth in the population (after all, people do need a source of income), shows that unemployment has fallen to 9.6% from a recession high of 11.9% in June, 2011. The difference is what I call the “detachment from reality index.” Here’s a chart of how the government’s figures have become more detached from reality since the onset of the recession, obscuring just how bad the employment picture has become: Detachment from Reality Index.
There’s been a lot of excitement about the brisk pace of economic growth in the 2nd quarter, and much of that growth is real. But it’s also a snap-back from the steep decline in GDP caused by the harsh winter in the first quarter. Already, economic data is beginning to indicate that the 2nd quarter was a flash-in-the-pan, catch-up quarter and that growth is beginning to flag.
The other day, Reuters ran an article about the Federal Reserve being puzzled by stagnant wages, given the (supposed) growth in jobs and decline in unemployment. (I tried to resurrect that article, but now can’t find it.) The answer lies in examining the growth in GDP vs. the growth in population and rising productivity. More on that in an upcoming post.