October Employment Report Belies a Stalled Economy

This morning’s release of the October employment report by the Bureau of Labor Statistics (BLS) blew away expectations.  According to the BLS, the economy added 271,000 jobs in October vs. expectations for an increase of 190,000.  It even handily beat the top end of the range of expectations – 240,000.  And unemployment fell by one tenth to 5.0%.  The economy must really be on a roll!

Well, maybe not.  A little perspective is in order.  First of all, unemployment didn’t really fall.  In September it was 5.051%.  In October it fell to 5.036% – a decline of only 0.015%.  Rounding the number to two significant digits makes it look like it fell from 5.1% to 5.0%.  Secondly, at the beginning of the report, the BLS observes that:

Over the past 12 months, the unemployment rate and the number of unemployed persons were down by 0.7 percentage point and 1.1 million, respectively.

While technically true, the BLS arrived at these numbers through heavy use of its favorite employment-enhancing trick – claiming that people have dropped out of the labor force.  A true accounting reduces these numbers to 0.3% and 410,000 respectively.  And a true accounting of unemployment puts the number at 8.8%.  The BLS admits in the report that the employment to population ratio is unchanged in the past year.  That’s true.  Take a look at this chart:  Per Capita Employment.  Per capita employment has risen five times in the past twelve months and dropped seven times, for a net loss of 0.03%.  October’s rise was barely a blip.

And the number of unemployed Americans is actually worse than it was ten months ago.  Here’s the chart:  Unemployed Americans.  Again, October’s decline is a barely-noticeable blip in the longer trend.

Earlier this week, Donald Trump took heat for claiming that the Federal Reserve helped the Obama administration with low interest rates and three rounds of quantitative easing.  The implication was that the Federal Reserve did some sort of political favor.  Probably not true, but the end result is the same – it definitely helped Obama with the economy.

A couple of days ago, Janet Yellen, chairperson of the Fed, made clear that an interest rate rise was definitely in the cards in December, leaving analysts scratching their heads over why.  Most of the economic data has been pointing to a slowing economy.  But, I believe, the Federal Reserve is getting desperate to get back in the game, since some are beginning to question its relevance in affecting the economy.  Interest rates at zero and $4.5 trillion of monetary easing have yielded nothing but the weakest economic recovery of the post-war era.  Is the October employment report a quirk, or does Trump have it backwards in this case and perhaps the BLS just threw the Federal Reserve a bone to help it justify its case?

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