Monday, October 8, 2012

“The Jobs Data – Are We Better Off?”

Sydney M. Williams

Thought of the Day
“The Jobs Data – Are We Better Off?”
October 8, 2012

As this Administration (or any administration, for that matter) is wont to say when a monthly series goes against them, “Don’t put too much faith into any one month.” On the other hand, when numbers support their argument, they flaunt them. The jobs data, issued last Friday, seemed the perfect antidote to the President’s abysmal showing Wednesday night.

But were they? I am not a believer in conspiracy theories suggesting the Department of Labor simply conjured these numbers to conveniently get the unemployment number below 8% four and a half weeks before election, but it is understandable why some might feel that way. Everybody in Mr. Obama’s campaign must answer to Chicago’s finest – David Axelrod. And his job is to re-elect the President. He is known for his ruthless ability to exploit every opportunity. However, the Bureau of Labor Statistics (BLS,) which gathers this data, is comprised of civil service workers who make estimates of labor conditions. I feel pretty certain – and I trust and hope I am correct – that they are immune from the political shenanigans going on around them. (It is the reason for the Hatch Act. And it was disconcerting that HHS Secretary Kathleen Sibelius’ flagrant violation of the Act last February went unpunished.)

There are two surveys regarding the labor situation – the Establishment Survey, conducted by the Department of Labor’s BLS, and the Household Survey, conducted by the U.S. Census Bureau. The Establishment Survey is the more comprehensive of the two and generally considered the more reliable. It contacts 141,000 businesses and government agencies each month to determine how many jobs have been created or lost. It reported that non-farm payrolls had increased by an anemic 114,000 in September. However, they also revised upward previously reported employment gains for July and August by 86,000. The restatements showed a gain of 91,000 government jobs for July and August, with a downward adjustment of 5000 private sector jobs.

The Household Survey, in contrast, contacts 60,000 households every month. Their numbers showed an increase in employment of 873,000 in September, the largest increase since June 1983, which is what raised suspicions. It is from their numbers that the unemployment rate is derived. That showed a drop from 8.1% to 7.8%. All numbers are estimates and are subject to revision. To put the two surveys into perspective, there were, according to the U.S. Census, 117.5 million households in 2010 and about 6 million businesses with multiple employees.

However, of the 873,000 job gains in the Household Survey, 582,000 were “part-time for economic reasons,” according to the Census Bureau. It was the addition of part-time workers that accounted for the entire drop from 8.1% to 7.8%. Without them, the number would have been 8.2%, fractionally higher than August.

Determining employment figures involves guess work; thus it is trends over time that we should care about. The reported numbers can also be affected by relatively small changes in numbers or anomalies, as the example of part-time workers indicates. Determining percentages, as we all know involves fractions, having a numerator and denominator. In calculating unemployment, the Bureau of Labor Statistics divides the total number of unemployed, which they estimated to be 12.1 million people, by the labor force, which they assume to have been 155.1 million people. When we change either number, we affect the outcome. And, obviously, a change to the numerator is of much greater consequence than the same change to the denominator.

In addition to the increase in part-time workers, the BLS in their release noted: “In September, 2.5 million persons were marginally attached to the labor force…These individuals were not in the labor force, [but] wanted and were available for work, and had looked for a job sometime in the prior twelve months. They were not counted as unemployed, because they had not searched for work in the 4 weeks preceding the survey.” Had those 2.5 million people been added both to the numerator and denominator, the unemployment rate would have been a staggering 9.2%. However the numbers get spun, it is hard to find a great deal of comfort.

The labor participation rate is another number with a long and somewhat dismaying tail. It is the measurement of the numbers of people working relative to the size of the potential workforce. It is the ratio of the civilian labor force to the noninstitutionalized civilian population aged 16 and over. The data is provided by the U.S Census Bureau and the BLS. For the seven years ending 2008, it ranged from 65.7% to 66.7%. In January 2009 it was at 65.7%. For the past three and three-quarter years, the number has steadily declined to 63.6%, each year being lower than the preceding. As there are about 250 million Americans above the age of 16, each percentage point represents approximately 2.5 million people. In other words, if the labor participation rates were the same as when Mr. Obama took office there would be about 5 million more jobs than there are.

It is often conveniently forgotten by politicians that about 125,000 people enter the workforce each month. In order to keep labor participation rate steady, at least 80,000 jobs must be found each month. It also means that each Presidential term needs to find 6 million additional jobs.

It has been repeated ad nauseam by Mr. Obama that he inherited the worst recession since the Great Depression. I will give him that, even though unemployment was higher in 1982 than it ever got in this cycle, and the four recessions between 1970 and 1982 collectively did more damage than the one that ended more than three years ago. Nevertheless, what is indisputable is that Mr. Obama has presided over the feeblest recovery since the Great Depression. Monthly job creation in 2012 is below what it was in 2011. For example, a year ago monthly job growth in September, as reported in the Establishment Survey, was 202,000 versus the 114,000 reported last week. And September’s growth was lower than August, and August was lower than July. Growth in GDP has been lower in 2012 than it was in 2011, and 2011 was lower than 2010. Not a favorable trend.

The fact is, regardless of last week’s report, the employment numbers are dismal. If one takes the official unemployment figure of 12.1 million Americans, adds in the 2.5 million that the BLS excludes because they have not looked for work for the past four weeks, and the 8.6 million who are working in part-time jobs as they await full-time employment, you come up with 23.2 million Americans either unemployed or underemployed, implying a more realistic unemployment figure of 14.7% – virtually Depression-like conditions. Unemployment for those between the ages of 20 and 24 was 37.3%. Both African-American and Hispanic unemployment numbers improved from August, but remain elevated at 13.4% and 9.4% respectively. Despite such an abysmal record on the jobs and economy, Mr. Obama is telling us he deserves another four years in office. Does he?

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