Unemployment: Keeping It Honest 25 comments
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In an Op Ed today on TheStreet.com I shared my concerns about the mixed messages in the latest monthly Employment Situations Report from the U.S. Department of Labor (DOL). The analysis reviewed was based on my methodology for basing unemployment on the hours worked, rather than the current "body count" used by the DOL. My concept was described two months ago and the detailed mathematics and procedures were described July 6.
The hours worked based unemployment rate is 14.3% for July, down from 14.5% in June. I have named this measurement U-7. (Note: Don't go looking for U-7 in the government data bases. It is my creation and no one is tracking it yet, except me.) This corresponds directly to the offical unemployment rate (the DOL U-3 rate) of 9.4% in July, down from 9.5% in June. The difference between my U-7 and the official U-3 is much larger than any other time over the past 50 years. This emphasizes the much greater use of reduced hours in this recession compared to previous downturns.
I expect that employers are likely to increase hours of those remaining on their payrolls as a recovery unfolds, rather than hire additional "bodies". For this reason, U-7 should improve much more rapidly than U-3 in the early stages of recovery. If this is not happening, and U-3 remains near its highs, it contradicts any assumption that a recovery could be starting.
Two of my concerns about the latest data from the DOL are:
- The labor force is shrinking. From May to July, 577,000 people have disappeared from the official (DOL) labor force. Over the same time, the U.S. population has increased by 518,000. In this total, there was a net gain of 144,000 from immigration. Much of the gain from immigration should be working age people. Very little of the rest of the population gain (518,000 - 144,000 = 374,000) should flow into working age people. It is essentially the difference between the number of people being born and those dying.
- There was a huge increase in part-time employment from June to July. There were 420,000 more part-time employees in one month, including an increase in forced part-time employment (part-time for economic reasons) of 125,000.
If the decreasing labor force is a result of discouraged former workers that have given up and are falling out of the DOL survey, and if the increasing number working part-time is a result of decreasing demand for labor, the decrease in the unemployment rate does not reflect economic strength. If we assume that the labor force could really be 500,000 larger (not unreasonable considering the 577,000 and 144,000 numbers mentioned above), the U-3 would be 9.9% and U-7 would be 14.9%.
Additional analysis and discussion, along with some useful graphics, is available in the Op Ed piece.
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I inadvertently linked this for publication from my Instablog before finishing. I have added a significant more discussion and two graphics. The additions address some of the points raised by commenters so far.
I am asking the editors to replace this article with the updated one. It may take a while for that to happen.
The link to the Instablog is seekingalpha.com/insta...
Sorry for the inconvenience.
I think your point is valid. I did not include that in my discussion. I am trying to get my arms around what appears to be the abnormal decrease in the labor force. Both your factor and mine would be giving an improved unemployment rate.
On Aug 07 04:44 PM thiazole wrote:
> I think we are far enough along in this recession that at least some
> of the numbers of missing jobs could be from new businesses created
> by people who were laid off. Their numbers aren't counted in the
> establishment survey making it look like people are leaving the labor
> force, but they are counted in the household survey causing the unemployment
> rate to drop anyway. Perhaps I'm ahead of myself on this hypothesis.
Even if we get .1 % per month, we're still 2 quarters away from July 2008 and from any net additions to non-farm payrolls. Now if the work week rockets to 33.3 or what have you--even if total payroll employment stays constant, whether you use "U7" or U3/U6--maybe we've got a good recovery underway. Nevertheless, we haven't even reached a measurable bottom this year in the average weekly hours. Maybe John agrees or does not, but in my opinion the NBER, looking at the current data, would say there just isn't enough of a trend in the BLS monthly data to suggest an end date for the recession. I'd say you'd need at least two more BLS reports of improving net payrolls and two upward revisions in the work week.
Now, if by November we have these trends plus a good 3Q GDP and a good revision to Q2 GDP--if we have these and nothing untoward like h1n1 hit us--then you can do the green shoots dance. Lots of "maybe's" between now and then.
On Aug 07 04:44 PM thiazole wrote:
> I think we are far enough along in this recession that at least some
> of the numbers of missing jobs could be from new businesses created
> by people who were laid off. Their numbers aren't counted in the
> establishment survey making it look like people are leaving the labor
> force, but they are counted in the household survey causing the unemployment
> rate to drop anyway. Perhaps I'm ahead of myself on this hypothesis.
U-7 vs. U3. U2 we know is a rock band. Where is U-4-6?
It hit me today: What's in it for the employer? We have a bull run, but why? If you want more employees, shouldn't you sweeten the deal for the employer?
www.schiffforsenate.co...
You wrote:
"Maybe John agrees or does not, but in my opinion the NBER, looking at the current data, would say there just isn't enough of a trend in the BLS monthly data to suggest an end date for the recession. I'd say you'd need at least two more BLS reports of improving net payrolls and two upward revisions in the work week."
The nber will look back at this time and decide (maybe 6 or 12 months from now) exactly when the bottom occurred, if it indeed has or does. Trying to figure out what they will do from a future perspective when you are in the present will drive you crazy. But don't we all try to do that? Maybe a lot is explained about our sanity with that observation.
There are plenty of great arguments that the published Unemployment Rate of 9.4% is understated.
There is one item that confirms the arguments: the unprecedented and historical record decline of 18% in Federal Tax Revenues is a the confirming number. The 18% reduction in tax revenue correlates more with a 15% Unemployment rather than a 9.4% unemployment rate.
the employment picture is less bad, but we are a few months away from the employment trough. i don't understand the euphoria on employment anyway. we are in a big, bad, deep hole.
I would call your statistic labor utilization rather than unemployment rate. The interesting thing about that is it captures underemployment as well as unemployment. As labor is more effiently utilized more productivity gains should be expected. It's a sad state of affairs when Americans share the same work week as the French -- 33 hours per week. I am doing my part by working 50+ hours a week but my work is not counted because I am self employed.
This stupid retail investor bought most of her holdings right after the bottom in March. I've been riding this bubble train to the tune of an 80% increase in my total portfolio (and collected my dividends along the way). When the S&P hits its peak (1050 / 1100) I'll sell down to at least 50%, put in some shorts, ride the train down, and buy again when it hits bottom.
It's not whether you're "retail" or not, it's how you play the game.
On Aug 07 08:56 PM stockartist wrote:
> The stock market is being driven by momentum buying and liquidity
> from and government and hedge funds. This too will end badly. It
> may take some time, but by then the retail investor will be invested.
> And then look for the institutions to exit, leaving the little guy
> holding the bag. Will they ever learn?
Why can't we make available lower mortgage interest rate without expanding the money supply. Creating new money by the Federal Reserve to fund the huge federal deficit will create inflation.
The problem in the housing market is not down payments, it is monthly payments. Ask yourself where interest rates should be based on a Fed rate of .25%. Investors and banks cannot lower interest rates that low. Nobody will loan money on collateral that is going down in price. There is only one entity that can offer low enough interest rates to create enough demand in the housing sector to put a floor under housing prices and that is the government. The Treasury is a not for profit government agency. It could fund an ARM that would start at 3% and go up 1/4% a year until it capped out at market rate. To eliminate the possibility of more defaults the person would have to qualify at the currant mortgage interest rate. When housing prices stabilize the Treasury would sell the mortgages back into the private economy. This Plan should be the second stimulus. It would not cost the taxpayer anything. I would not fund what is left of the first stimulus and modify it to lower the deficit which would keep interest rates from rising. For more info economysflaw.wordpress...
Just as manufacturing employment possibilities have been decreasing, so will service sector employment possibilities fall, even government will fall. These is no question that our economy will be different, maybe more efficient, and less consumer oriented. I suspect that small business units will grow significantly and we all know how little is reported there. Many of us will be working in small business units few knows of, not even the IRS. And if federal taxes rise the underground economy will explode and it is really not well understood by anyone, well, those willing to talk.
What the hey computer trading doesn't care about facts, productivity, innovation, etc. How 21st Century and the "Greatest Generation" who gave us the goodies we have today. We will pass on our debt.
I apologize to my deceased disabled war veteran father, two brothers who fought at Iwo Jima and other brother who was a Marine who occupied Japan, the place where his car has been manufactured.
On Aug 08 08:16 PM Prudent Man CFA wrote:
> The government is still adjusting employment, unemployment, wages,
> etc. for the past twenty years and earlier. They are fun to trade,
> for some, but worthless for investors if there are any today.
>
> What the hey computer trading doesn't care about facts, productivity,
> innovation, etc. How 21st Century and the "Greatest Generation"
> who gave us the goodies we have today. We will pass on our debt.
seekingalpha.com/insta...