February Employment Report: “Real” or “Fake?”

March 15, 2017

The employment report for the month of February (the first full month of the Trump administration) was released on Friday and the numbers looked pretty good.  The economy added 235,000 jobs and the unemployment rate fell one tenth to 4.7%.  President Trump hailed the news and declared that, though the employment reports during the Obama administration were fake, that the February numbers were very real.

Let’s examine that claim.  First of all, take a look at this chart:  Labor Backlog.  Some explanation is in order.  “Actual labor force growth” is the growth in the labor force if it had grown at the same rate as the overall population as it does in reality.  The “BLS reported labor force growth” is the growth in the labor force that the Bureau of Labor Statistics uses to calculate the unemployment rate.  The “change in employment level” is a figure taken directly from the BLS monthly data.  It’s the growth in the number of people who report being employed in the household survey.  The “labor force backlog” is the difference between the growth in employment level and the “actual labor force growth.”  If the employment level grows faster, then unemployment should decline along with the “labor force backlog.”

Note that during the Obama years, the BLS consistently reported less growth in the labor force than what the growth in the population would suggest.  Only in 2012 and 2015 did the BLS report labor force growth that was slightly above actual growth.  The result is that the “labor force backlog” grew steadily during the Obama administration until it peaked at the end of 2014 at 6,359,000 workers who were unemployed.  By the end of 2016, that backlog had fallen only slightly to 5,994,000 workers.  In spite of that, according to the BLS, the unemployment rate plummeted from 9.9% in 2008 to 4.7% in 2016.  That’s impossible and the only way that the BLS was able to make it appear that the unemployment rate was dropping was by claiming that workers were dropping out of the labor force or by not growing the labor force as the population grew, or through some combination of those factors.  Thus, when Trump claimed that the employment data was “fake” during the Obama administration, he was exactly right.  If you’ve been a follower of this blog, you know that it’s something that I maintained all along throughout the Obama administration.

OK, so how about Trump’s claim that the numbers now are “real?”  So far, in January and February, the BLS has reported growth in the labor force of 416,000 workers.  The actual growth in the labor force – if it grows in proportion to the population – is only 89,000 workers.  In other words, so far in 2017, the BLS now claims that 327,000 “missing” workers have reappeared in the work force.  That supports Trump’s claim that his numbers are real.  But time will tell.  Two months’ of data isn’t nearly enough to judge how honest the Trump administration is being when it comes to the employment reports.  It’s something I’ll watch just as closely as the Obama numbers.


Employment Level Falls by 43,000

November 4, 2016

The media is ballyhooing the October employment report as evidence of strong job growth and a strong labor market.  Don’t be fooled.

Sure, the headline numbers look good.  According to the establishment survey, the private sector added 142,000 jobs and unemployment fell to 4.9% (from 5.0% in September).  That’s good.  However, in the new normal where 100,000 is the new zero, it’s not great.

But look deeper.  The employment level – the number of people employed according to the household survey – actually fell by 43,000 in October.  The drop in unemployment?  That’s only due to a supposed decline of 195,000  workers in the labor force – the old “vanishing labor force” trick that the Obama administration has used often to mask the reality of a weak labor market.  In fact, with the population growing by 224,000 in October, the labor force grew by over 100,000.  Without that trick, unemployment actually rose by a tenth of a percent in October, and an honest measure of unemployment – one that grows the labor force along with the growth in population – has unemployment at 7.9%.

Regarding the employment level, it’s also worth noting that since February it has risen by 851,000.  That’s an average increase of 106,000 per month – barely keeping pace with growth in the population.  Consequently, there’s been no improvement in the historically high rate of 7.9% unemployment (the rate it would be if the labor force grew in proportion to the population).

It’s also worth noting that per capita employment – the employment level divided by the population – is exactly where it was in February.  No improvement.

October’s employment report is one more piece of evidence that the economy continues to stagger along in a zombie-like state.

Next up:  the September report on the trade deficit, also released this morning.

 


Trouble Signs in the Employment / Labor Market Picture

October 8, 2016

The September employment report, released Friday by the Bureau of Labor Statistics, continues a trend that has characterized much of 2016.  Job growth is slowing.  The economy added 156,000 jobs, but that’s the third straight monthly decline and is below the year-to-date average for 2016 (178,000 jobs per month), which is already down from 2015 (229,000 jobs per month).

Economists were at odds over how to interpret this latest report.  Some called it a “goldilocks” report – not too hot and not too cold.  In fact, on the surface, that might seem an apt analysis.  156,000 new jobs should be enough to absorb the growth in the labor force that results from population growth.  Yet, unemployment rose to 5.0% after hitting a low of 4.7% in May.

What’s happening is that what I have referred to in the past as the “mysteriously vanishing labor force” is reappearing.  It’s not a one-month phenomenon, but a trend that’s been building for well over a year now.  To better illustrate what’s happening, I ran some numbers dating back to the onset of the financial crisis that began at the end of 2007.  I tracked the change in the labor force and compared it to what the real growth in the labor force has been, assuming that people still need to find work to support themselves in about the same proportion that we’ve seen historically.  That is, about half of the population.  In other words, if the U.S. population grows by three million per year, it’s safe to assume that about 1.5 million of those people need work to support themselves and their dependents.  That’s been the historical norm.

If the growth in the labor force recorded by the BLS didn’t keep pace with the actual population, or if it actually contracted, then that’s a labor force “backlog” that the economy will eventually have to absorb and put to work at some point.

I then compared this backlog to the “employment level” reported by the BLS from its “household survey” portion of the monthly employment report.  Here’s what I found:

labor-backlog

From 2008 until present, the actual labor force grew pretty consistently each year, along with the growth in the population.  (2011 was lower because of an adjustment to the U.S. population based on the 2010 census.)  However, note the 2nd line – the growth (or contraction) of the labor force reported by the BLS.  Until last year, only one time did the BLS-reported growth exceed the actual growth in the labor force – in 2012.  Each year that it was less, people actually dropped out of the labor force – thus, the “mysteriously vanishing labor force.”  My more cynical side suspects the Obama administration of manipulating this figure to make the unemployment rate lower.  But let’s assume that people actually did drop out, employing an array of tactics to survive financially, at least for some period of time.

The third line is a calculation of the “labor force backlog,” a cumulative tally of how many people have left the labor force.  For example, in 2009 when the BLS reported that the labor force actually contracted by 1.544 million workers, this figure added to the actual growth in the labor force of 1.324 million workers, produced a backlog of 2.868 million workers.  Added to the 2008 figure, the backlog by the end of 2009 was 3.505 million workers.

Line 4 is the change in the employment level reported by the BLS based on the household survey.  Again using 2009 as an example, the BLS reported that the employment level actually fell in 2009 by 5.356 million people.  It was a horrible year.  As a result, the unemployment rate actually soared to 9.9% in 2009 from 7.3% in 2008.  (It was 5.0% in 2007.)

With all that said, here’s the problem I see developing.  In 2015, the growth in the labor force reported by the BLS exceeded the actual labor force growth.  In other words, people in the “labor backlog” rejoined the work force.  And through last month, that has accelerated dramatically.  In only nine months, the labor force has grown by an amount that would usually take almost two years.

Economists say that this trend is the result of an improved labor market.  People see the jobs picture brightening, making the time right to find a good job.  But I believe another factor is at play here.  The tactics used by displaced workers to survive the downturn have run their course.  Those who went back to school for more training and more advanced degrees (including those who scammed the system and used student loans to meet living expenses) are now saddled with all the student debt they can endure.  Those who went back home to live with Mom and Dad may have overstayed their welcome or have put their families in a financial bind.  Others may have exhausted the severance packages they received when they lost their jobs.  People need a source of income to survive.  The idea that people could simply drop out of the labor force without consequences was preposterous.

The labor force backlog reached a record 6.359 million people by the end of 2014.  As of last month, it’s dropped some to 4.9 million workers, but that’s still a huge backlog.  As of last month, workers are pouring back into the labor force at a rate that has exceeded the growth in the employment level, a trend that’s actually accelerating at the very same time that job creation seems to be slowing.  As a result, unemployment has begun to rise again. This trend is likely to begin to put downward pressure on wages and could actually reduce consumer confidence and slow the economy.  And, it should be noted, that much of the job creation we’ve seen in recent months has been in the restaurant and bar industry and in retail – sectors of the economy that are especially sensitive to consumer confidence.  They’re the first places people rein in spending when finances get tight.

All of this spells trouble for the economy in the coming months.

 


Employment report has lost all credibility

March 5, 2016

The employment report for February, released yesterday by the Bureau of Labor Statistics (BLS), has completely lost all credibility.  I’m not talking about the headline numbers – the gain of 242,000 jobs or the fact that unemployment held steady at 4.9%.  It’s how the latter number was arrived at.  And it’s the little-noticed (because it’s not a headline number) jump in the labor force participation rate.

According to the BLS, the “employment level” (the number of people in the household survey who report having work) soared again in February by 530,000 – far in excess of the 242,000 jobs added by the establishment survey – many of which are part-time jobs that were likely held by people already working other part-time jobs.  In other words, the rise in employment level should be less that the number of new jobs created – not more, and especially not more than double.

This is almost a duplicate of the situation reported in January, when the BLS reported that the employment level rose by 615,000.  That’s a gain in employment level of 1.15 million people in only two months!  (Don’t believe me?  Here’s a link to that part of the household survey:  http://data.bls.gov/timeseries/LNS12000000?years_option=all_years&periods_option=all_periods)  Folks, these numbers are simply impossible.  They would be impossible in a healthy economy.  How much more impossible are they when GDP is running at 1.0%, when manufacturing is in steep decline and when other economic indicators -aside from auto sales and construction spending – are completely flat?  Even this report itself found that wages fell in February, along with the average work week.  Those aren’t numbers that are consistent with huge gains in the employment level.  Finally, if the economy were doing that well, polls wouldn’t be consistently finding that 80% of Americans, representing both the left and right of the political spectrum, believe that the country is on the wrong track.

It gets weirder.  This huge jump in the employment level would have sent the headline unemployment number plunging so much that it would have raised all kinds of red flags about the report.  Unemployment would have fallen from 5.0% in December to 4.4% in February – a number that no one would have believed and a number that would have sent the Federal Reserve into a mad scramble to raise interest rates – right at a time when global markets were in a major sell-off.  Instead, the unemployment rate held steady because the BLS also claimed that 1.05 million workers flooded back into the labor force.  In other words, in only two months time, 1.05 million people suddenly began looking for work and every single one of them – plus an additional 100,000 (where did they come from?) found work.

There’s something very fishy going on with these employment reports.  I can see three possibilities:

1)  Throughout the “recovery,” the Obama administration has continued to receive flak for a low labor force participation rate.  In other words, the economy wasn’t adding enough jobs to put back to work all of the people laid off in the Great Recession.  Are they now rigging the numbers so that that won’t be part of the president’s legacy?

2)  The only plausible piece of this data is that, in fact, a million people have begun looking for work again but, if the employment level didn’t rise in lockstep, the unemployment rate would be skyrocketing – setting off alarm bells about a recession that markets have already begun sensing.

3)  The BLS is in cahoots with the Federal Reserve, now practically in a panic mode to make itself appear relevant to the economy again, and is helping it with justification for doing just that.

And let’s not forget that this is an election year.  A low unemployment rate supports the Democratic candidate.

Too bad that these employment reports are simply taken at face value by the media with no one bothering to scrutinize the details.

 

 

 


Unemployment Rises 0.1% in December

January 4, 2013

http://www.bls.gov/news.release/empsit.nr0.htm

This may get a bit rambling because much has happened since the holidays, and to break these issues into separate posts would only assure that all but the most recent would quickly scroll out of view.

So let’s begin with the big economic story of the day – the employment report.  The headlines read something like “Economy adds 155,000 new jobs; unemployment rate holds at 7.8%.”  Regarding the latter claim, it’s only technically true because the figure is rounded to only one decimal place.  Unemployment actually rose by 0.1%, from 7.75% in November to 7.848% in December.  That’s thanks to a paltry increase in the employment level compared to the growth in the labor force.  Unemployment remains stuck in the “new normal” of about 8% (the official “U3” rate, manipulated to understate unemployment by claiming that more and more people drop out of the labor force) or, more accurately, around 10-1/2% when the labor force is held steady at a percentage of the population, which is constantly growing.

Here’s the chart:  Unemployment Chart  (Notice how “U3” has been trending down, creating the illusion of a recovering economy, while “U3a” is holding steady around 10.5% – a more accurate depiction of a sour economy stuck in neutral.)

Per capita employment, the employment level as a percentage of the population, remains near its lowest level of the recession.  Here’s the chart:  Per Capita Employment

And take a look at this chart:  Labor Force & Employment Level.  Notice that the employment level remains several million below the start of the recession, while the population and labor force have grown by 13 million and 6 million respectively.  In other words, not a single worker (out of six million) added to the labor force in the last five years has found work.  In fact, three million workers have lost their jobs in the last five years.

And don’t be fooled into thinking that things will improve this year.  Though the “fiscal cliff” deal made permanent the Bush tax cuts for about 98% of Americans, it didn’t stop the payroll tax from rising by 2%.  So virtually every American worker took a 2% pay cut on January 1st.  That’s likely to shave about 1% from GDP – not good for an economy that, by most estimates grew at only a 1% rate in the 4th quarter.  In other words, the economy is likely to stall for that reason alone, not to mention the big spending cuts that were delayed by only two months.

But there’s bigger reasons brewing to be pessimistic about the economy.  We’re facing another debt ceiling crisis in less than two months.  The last time this happened, in August of ’11, the stalemate in Congress very nearly drove the nation to default.  Markets plunged violently and the economy very nearly sank into recession again.  This time, it could happen.  President Obama has already said that he won’t negotiate over the debt ceiling, and House Republicans have already signaled that they won’t raise it without getting big spending cuts in return.

Secondly, the Federal Reserve is getting cold feet about its quantitative easing, which has pumped $3 trillion into the economy in the last few years.  Fed governors are worried about unintended consequences.  It may be no coincidence that their concern is intensifying as the debt ceiling fight approaches.  They may be worried that the Fed’s massive holdings of treasuries may make default seem less scary to lawmakers, who may rightly believe that the U.S. could choose to default selectively on only the debt held by the Fed, sparing foreign investors from any pain.  That would be a truly dangerous precedent.  So, although one of my “long shot” predictions for 2013 was that the Fed may reverse course, only 4 days into the year we’re already hearing rumblings that it could happen.  Any of these scenarios – big spending cuts, another near- or actual default, or an end to quantitative easing by the Fed – would surely drive the economy into recession.

The economy is painted into a corner from which there is no escape without tackling the trade deficit that put it there in the first place.  Mark my words, the economic gimmicks that have been used to create an impression of a recovery following the Great Recession have just about been exhausted.  The economy we have right now – the new normal of high unemployment – may be as good as it gets for a long time.