A Different Take on September's Employment Numbers

Nonfarm payroll employment declined by another 263,000 jobs in September. According to the Labor Department release, over the recent period:

From May through September, job losses averaged 307,000 per month, compared with losses averaging 645,000 per month from November 2008 to April. Since the start of the recession in December 2007, payroll employment has fallen by 7.2 million.

As usual, most of the TV commentators gave the impression to their viewers that there was no job creation in September and that there were 263,000 job losses. A typical question was “When are we going to see job creation again?”

The truth is that there were many jobs created in September and in recent months. It’s just that there were more jobs lost. The numbers we get are the net differences between significant numbers of gross job gains and gross job losses. These gross gains and losses are many times the net difference. This detail is worth keeping in mind lest we get the false impression that our dynamic ever-changing and evolving economy is stagnant.

The Bureau of Labor Statistics, in addition to the net changes in jobs, publishes a data series called Business Employment Dynamics. It shows the gross changes that make up the net changes. Unfortunately, the gross changes are published with a lengthy lag.

When I checked on this a couple of years ago before the dramatic declines began, I found that the monthly gross job gains and gross job losses were very roughly 240,000 each per month. On average, and very roughly speaking, the net gains would be about that much above 240,000 and the net losses would be about that much below 240,000.

I adopted the 240,000 number as my approximation because it was also convenient to think of it as the length of a 24 inch, or 2 foot, ruler, with each of the 24 inches representing 100,000 jobs. As a guest host on Squawk Box on CNBC once, I actually brought two colored 24 inch sticks to demonstrate visually that what makes the news is whether the green job gain stick was an inch or two above or below the red job lose stick. I think I made the point adequately, but the regulars on the set looked a little pale when I brought out my sticks.

The latest published numbers from gross private job gains and losses are for the 4th quarter of 2008 when unemployment was rising rapidly. The gross job gain that quarter came to 6,712,000 while gross job losses totaled 8,467,000, for a net quarterly loss of 1,755,000 private jobs. Dividing these numbers by 3 to convert quarters to months, gross monthly gains were 2,237,333, gross monthly losses were 2,822,333, and net monthly private job losses were 585,000 per month. That last number is the only one emphasized in the media and what most people see or hear. I think most will agree that, while correct, that practice greatly understates the underlying dynamics of the economy.

In terms of my corny sticks with 1 inch equal to 100,000 jobs, gross monthly job gains are just over 22 inches while job losses are just over 28 inches–a six inch difference. Job gains are down two inches while losses are up four inches. They need me and my sticks back on Squawk Box.

Comments

[John Lounsbury:]

Bob - - -

You are very correct. People do not appreciate the dynamics of the employment market, with millions of employment changes made every month. They just hear the headline "net number".

Not to disagree with you in a harsh way, I want to point out an analogy to my business. If I take in $1,000 in a month and my expenses are $900, my business is profitable. If, on the other hand, my expenses are $1,100, my business is losing money. I can continue making $1,000 and spending $1,100 until all my resources are consumed and the business is gone.

Carrying the analogy over to employment, I can keep on creating 2,000,000 jobs a month and losing 2,200,000 until I have no one left working. Actually, I come to a breakdown when I have 2,000,000 jobs left, because I no longer have 2,200,000 jobs left to lose.

The above argument is frivolous because it goes to an unattainable extreme. It has value in emphasizing that the net change in employment each month is the most important number. I can not argue with your position that it is important that people, particularly the unemployed, recognize that 2,000,000 +/- are finding work in a month, even when the net number shows a job loss. After all, people need to keep looking for work, even when the number of unemployed is six times the number of new jobs being created, as is the case at present.

Oct 05 03:11 PM

[CautiousInv...:]

I look at JOLT over at BLS and the number of jobs being created is just awfull, an observation supported by the statistic that there are six applicants for every job opening. My greatest fear is call for a second round of stimulus rooted in panic, fear and confusion.........with zero thought given to our strategic interests and the shape of our implicit industrial policy.

Oct 05 03:28 PM

[HERO1957:]

Are you saying there is something positive in the net loss of jobs?
Maybe you think about sticks too much.

Oct 05 03:33 PM

[ryanclarke:]

What you refer to as "dynamic" can also be construed as "unstable." When both the employer and employee are satisfied with the work/wage balance people will "stay put." When people stay put they buy a house, have kids, etc. At least, that's the way things used to be. JOLTS confirms the obvious. The economy for the past ten years, based upon finance and speculation in assets, has produced nothing but a great mass of people in perpertual pursuit of happiness. That lack of stability induces 'I'm out for myself because I've got to take care of myself because God knows that's the only person who's going to do it." Uncle Sam certainly isn't. The church and the family aren't going to either. They were marginalized years ago. So today's average worker, who has no assest other than his prior skills, is presented with the following: "I can be a wage slave at my old master's shop, namely Booger King, who mistreated me by firing me when times where bad and won't hire me again until his current slaves can make the King happy again, or I can flip hamburgers at McDonalds. I think I'll go beat the meat at Donny's place ... hence the unbelievable turnover in the labor market and the inability of the economy in general to produce long term stable growth without the state's blatent manipulation. This isn't capitalism ... and working for a living doesn't compensate for the stress of unstable employment.

Oct 05 06:35 PM

[ryanclarke:]

... which is why the masses of people have turned into gamblers and taken they're money out of saving accounts in the banks (M2 is down even though the Fed's balance sheet has boomed), and have placed it in the casino of their choice ... the stock market, the commodity market, the real estate market, or at the local river boat in the slot machine. The Yankees catcher used to say, "money is just as good as cash." He might has well have said, "At a 1% savings account rate, SAVING money and SPENDING money are one in the same." Yogi also said about a local restaurant that fell on hard times, "no one goes there anymore, it's too crowded." Have you been down to the local new car dealer lately? Not too crowded ... because Bernake's decision to "save" the banks has in reality plundered them and M2 proves it !!!!!!!!!!!!!!!!!! How the heck, Bob, are banks going to lend when their resources to lend are going down and not up ??????????? I know, what I need to do is start a bank and get a loan from the Federal Reserve, just like GS did.

Oct 05 06:49 PM

[logicalthought:]

>>The truth is that there were many jobs created in September and in recent months. It’s just that there were more jobs lost.<<

Genius. Sheer genius.

From the author's profile:

>>Bob had a 36-year career with the Federal Reserve System, including 14 years as President of the Federal Reserve Bank of Dallas and member of the Federal Open Market Committee (FOMC).<<

Ah... THAT puts the author's keen insight into context.

Oct 05 08:20 PM

[lower98th:]

Grasping at straws.....really beneath you, Bob.

Oct 05 09:50 PM

[a fat panda:]

What you have omitted is where the jobs are growing, primarily in DC working for the government.

Oct 06 09:13 AM

[TeresaE:]

Your analysis does not take into account the millions that have gone from fully unemployed, to working part time for little pay and no benefits.

The BLS stats can pretend that a guy that used to make $50k a year with vacations and health care, is fully employed when he goes to work part time at Home Depot with crappy, if any, benefits. But to his local businesses, he is still fully unemployed.

These counts/stats were intentionally altered under Clinton, the criteria changed but the analysis stayed the same.

Oct 06 09:23 AM

[a fat panda:]

"it is important <to> recognize that 2,000,000 +/- are finding work in a month, even when the net number shows a job loss"

What is important to recognize is that many of these people are finding work that pays less than what they made previously.

The falacy in the net jobs number is that all jobs are equal. A net jobs report that treats a gain of a government job and a lose of a private market job is a worthless number. And I don't want to pick on just the public jobs. Jobs which build long-term marketable jobs skills (particularly transferable skills) are better than those that don't. Counting a new waitress as an equivalent offset plus for a former software designer is silly.


On Oct 05 03:11 PM John Lounsbury wrote:

> Bob - - -
>
> You are very correct. People do not appreciate the dynamics of the
> employment market, with millions of employment changes made every
> month. They just hear the headline "net number".
>
> Not to disagree with you in a harsh way, I want to point out an analogy
> to my business. If I take in $1,000 in a month and my expenses are
> $900, my business is profitable. If, on the other hand, my expenses
> are $1,100, my business is losing money. I can continue making $1,000
> and spending $1,100 until all my resources are consumed and the business
> is gone.
>
> Carrying the analogy over to employment, I can keep on creating 2,000,000
> jobs a month and losing 2,200,000 until I have no one left working.
> Actually, I come to a breakdown when I have 2,000,000 jobs left,
> because I no longer have 2,200,000 jobs left to lose.
>
> The above argument is frivolous because it goes to an unattainable
> extreme. It has value in emphasizing that the net change in employment
> each month is the most important number. I can not argue with your
> position that it is important that people, particularly the unemployed,
> recognize that 2,000,000 +/- are finding work in a month, even when
> the net number shows a job loss. After all, people need to keep looking
> for work, even when the number of unemployed is six times the number
> of new jobs being created, as is the case at present.

Oct 06 09:25 AM

[No Free Cake:]

Geez folks, relax. He's just pointing out more details behind an oft-reported number. No value judgement, no prophesy, just some further details.

Your comments say far more about you than it does about Bob's straightforward article.

Oct 06 09:31 AM

[Jeff Nielson:]

The problem with using the BLS's doctored gibberish as REAL numbers is that it will always make the writer look foolish.

The author writes:

"...The latest published numbers from gross private job gains and losses are for the 4th quarter of 2008 when unemployment was rising rapidly. The gross job gain that quarter came to 6,712,000 while gross job losses totaled 8,467,000, for a net quarterly loss of 1,755,000 private jobs..."

The problem here is that the weekly lay-offs numbers (taken directly from payrolls) totaled 8.5 million for that 3-month period - yet my understanding is that these payroll numbers represent less than HALF of the U.S. jobs market.

The BLS numbers NEVER "add up" - even when you compare them to OTHER BLS numbers (see "BLS jobs numbers contradict BLS jobs numbers" www.bullionbullscanada...).

Suggesting that the latest numbers are "good in comparison" is hollow logic - when all that has happened is the BLS is telling much LARGER lies.

Oct 06 12:58 PM

[Josh Dowlut:]

Pardon me for throwing the Captain Obvious flag on this but I'd be shocked if the average Seeking Alpha reader doesn't already know that the net figure is derived by weighing gross gains against gross losses. Do you really think anyone actually thinks when we hear the net figures that not a single job was created anywhere last month? We don't all have a PHD in economics but most of us have IQ's over 100. Is there a point you are trying to make? Apparently you find this fascinating as you even invented your own visual aid to demonstrate this novel concept.

Are you trying to argue that it's really not that bad because there are jobs being created? Can you honestly imagine a time when it would get so bad that there would never be any GROSS jobs created? If you can't then can you admit just how preposterous your suggestion is?

Oct 06 01:30 PM

[Jeff Miller:]

Josh -- I congratulate you on your wisdom in understanding the basics of labor dynamics, but you are vastly over-rating the general state of knowledge. If you listen to any one discussing job creation, you will see that many do not think that ANY jobs are being created. You can hear this from CNBC anchors, the top Internet pundits, and even a few real economists, so I am not picking on SA readers. I remember one famous CNBC anchor, doing a segment on Ohio, asking in surprise, "You mean there are job openings in Ohio? Where? Why don't people go there?"

Note also how some comments are confusing JOLTS (which shows job openings) with Business Dynamics (which describes job creation). Not everyone finds it all as obvious as you do.

My guess is that most of the people writing on employment issues could not come within an order of magnitude if asked the number of new jobs created in a month.

More generally, I am disappointed that readers cannot accept an article like this for what it provides. If you already understood everything in it, well good for you.

Personally, I think Bob's visual aid is badly needed and should get more air time. Here's another one. How many jobs are lost in a year? If you think in gross terms, as Bob suggests, you will reach an answer of 30 million or more. This is a much better read on the devastating impact of the recession, since it makes clear how many are touched.

I am a big fan of Bob's work, and I respect his right to pick topics that he thinks would be helpful. I might add that the SA editorial staff thought the piece was worth a front-page feature. I strongly agree.


On Oct 06 01:30 PM Josh Dowlut wrote:

> Pardon me for throwing the Captain Obvious flag on this but I'd be
> shocked if the average Seeking Alpha reader doesn't already know
> that the net figure is derived by weighing gross gains against gross
> losses. Do you really think anyone actually thinks when we hear
> the net figures that not a single job was created anywhere last month?
> We don't all have a PHD in economics but most of us have IQ's over
> 100. Is there a point you are trying to make? Apparently you find
> this fascinating as you even invented your own visual aid to demonstrate
> this novel concept.
>
> Are you trying to argue that it's really not that bad because there
> are jobs being created? Can you honestly imagine a time when it
> would get so bad that there would never be any GROSS jobs created?
> If you can't then can you admit just how preposterous your suggestion
> is?

Oct 06 02:53 PM

[dw57:]

and they were altered yet again under Bush. the birth/death 'jobs' were created. and they have been numbering the 100K plus range. even if they never existed


On Oct 06 09:23 AM TeresaE wrote:

> Your analysis does not take into account the millions that have gone
> from fully unemployed, to working part time for little pay and no
> benefits.
>
> The BLS stats can pretend that a guy that used to make $50k a year
> with vacations and health care, is fully employed when he goes to
> work part time at Home Depot with crappy, if any, benefits. But
> to his local businesses, he is still fully unemployed.
>
> These counts/stats were intentionally altered under Clinton, the
> criteria changed but the analysis stayed the same.

Oct 06 04:21 PM

[Josh Dowlut:]

I'm reminded of two things from my formal econ education days:

1. I realized I had both an absolute and a comparative advantage in the field of economics when I overheard some seemingly smart kids lamenting over how they had gotten C's on the most recent exam in a class that I head yet to miss even one point in.
2. There are few if any new concepts revealed in upper level econ courses. The majority of upper level econ courses are spent mathematically proving the concepts you learned in lower level classes.

Econ is actually quite simple, and consistent with most people's common sense, but elitists try to complicate it. Greg Mankiw once said that while any student seeking graduate school in econ should take as much advanced (post calculus) math as possible, that such math was for lack of a better word worthless in the real world. There is a real danger when your mathematical and analytical skills decouple from your common sense skills. It leads to guys like Stiglitz and Krugman calling transfer payments stimulative/pro growth and people thinking the road to prosperity is paved by destroying cars that work. How about the Kenesian multiplier? If anyone really believed in that then the government should spend 100% of GDP. My point is economists of mainstream academia need to stop over analyzing the obvious and listen to common sense regardless of what mathematical modelling tells them. So what if you have some MIT, PhD physicists who tell you a bunch of loans with 580 credit scores, stretched income and no money are AAA credit risk, what does your common sense say?

I'm not going to judge the author on one article, but he did just take several paragraphs to explain that net jobs created equals gross jobs created minus gross jobs lost. Perhaps Captain Obvious was the wrong phrase. Perhaps I should have used the Holly Grail of obviousness catch phrases that involves a London detective.


On Oct 06 02:53 PM Jeff Miller wrote:

> Josh -- I congratulate you on your wisdom in understanding the basics
> of labor dynamics, but you are vastly over-rating the general state
> of knowledge. If you listen to any one discussing job creation,
> you will see that many do not think that ANY jobs are being created.
> You can hear this from CNBC anchors, the top Internet pundits, and
> even a few real economists, so I am not picking on SA readers. I
> remember one famous CNBC anchor, doing a segment on Ohio, asking
> in surprise, "You mean there are job openings in Ohio? Where? Why
> don't people go there?"
>
> Note also how some comments are confusing JOLTS (which shows job
> openings) with Business Dynamics (which describes job creation).
> Not everyone finds it all as obvious as you do.
>
> My guess is that most of the people writing on employment issues
> could not come within an order of magnitude if asked the number of
> new jobs created in a month.
>
> More generally, I am disappointed that readers cannot accept an article
> like this for what it provides. If you already understood everything
> in it, well good for you.
>
> Personally, I think Bob's visual aid is badly needed and should get
> more air time. Here's another one. How many jobs are lost in a
> year? If you think in gross terms, as Bob suggests, you will reach
> an answer of 30 million or more. This is a much better read on the
> devastating impact of the recession, since it makes clear how many
> are touched.
>
> I am a big fan of Bob's work, and I respect his right to pick topics
> that he thinks would be helpful. I might add that the SA editorial
> staff thought the piece was worth a front-page feature. I strongly
> agree.

Oct 06 04:48 PM

[Moon Kil Woong:]

I think your sticks need to be used on the rears of some useless financial commentators more than anything else. Really, I am always astounded about how irrational and uninformed the financial news sites really are. Perhaps they try to be that way. It makes better drama. If that's the case go after the producers with your sticks.

Oct 07 01:56 AM

[Lsente:]

You just (inadvertently) confirmed how absolutely abysmal that jobs report was.

I would also like to point out to those critical of the approach taken in this article; I think Mr. McTeer's blog does not service the finance community. So save your critiques for the strippers at scores and CNBC analysts. Harbor a guess why these two are correlated.


(all about big fat tits)

Oct 07 02:51 AM