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.

Labor Market Tanking along with The Economy

May 7, 2016

As economic growth completely stagnated in the first quarter – so much so that per capita GDP growth was actually negative – the monthly employment reports inexplicably continued to paint a picture of a robust labor market that was adding hundreds of thousands of jobs a month.  Those reports didn’t mesh with other reports that showed the economy slowing, including corporate profits which have been slowing for the past year and worsened further in the first quarter.

It seems, too, that someone forgot to tell workers just how well the labor market was doing, since anger over the sorry state of the labor market has featured prominently in the races for both parties’ presidential nomination.

Finally, the employment report for the month of April, released yesterday by the Bureau of Labor Statistics, has begun showing cracks in its facade.  It seems that the economy added “only” 160,000 jobs in April, well off expectations for another gain of over 200,000.  And unemployment held steady in spite of the employment level falling by 316,000 jobs, thanks once again to 362,000 people vanishing from the potential labor force.

If it were an honest assessment of the condition of the labor market, the addition of 160,000 jobs to the economy would actually be pretty darned good news in light of the fact that it’s nearly twice the rate needed to keep pace with growth in the population.  But it’s not an honest assessment and, for that reason, is a warning sign that the labor market is, in fact, not in good condition.

I’ve come to the conclusion that the monthly employment report may be one of the lousiest measures of how our economy is performing, thanks to decades of constant tinkering with the methodology that each administration does to put a good face on how the economy has performed.  For example, if a company eliminates one full-time job and replaces it with two part-time jobs (a common tactic for eliminating benefits and cutting pay), that actually counts as the creation of one job, since two jobs were added while one was eliminated.  Or, if you take a second part-time job in order to keep your head above water, you’ve just “created” a new job, even though no new work is being performed in the economy.  So, as the economy has transitioned from full-time jobs to part-time jobs and temp jobs over the past few decades, employment appears to have grown while reality is exactly the opposite.

That’s the establishment survey portion of the report.  Things are just as bad on the household survey side where it’s almost impossible not to be counted as employed.  You don’t even have to earn money to be counted as “employed.”  If you lose your job and, in order to make productive use of your time, you now help out someone in the family who’s trying to scratch out a living running a small business, you help them out for free, you’re counted as “employed.”

Another economic indicator that has become just as worthless is the weekly tally of first-time unemployment claims.  Of course claims keep falling.  Fewer people are eligible for unemployment as the economy has made this transition from actual, paid employment to one where people do things to scratch out a living that don’t fit that report’s definition of “employment.”

It’s all a big show where great employment numbers probably reflect a so-so economy and good numbers (like April’s) are actually a warning sign that things are beginning to tank.