Lies, Damn Lies and the Unemployment Rate

I like this term I found in this CNNMoney.com article - "Underemployment"; I've been struggling to think of a term for all these people who are struggling with part time work, working 2 jobs, or in contractor jobs where they get hired/fired on a daily whim ( I call them "nomad workers"). Before we get into that, as we preview this Friday's job report, I want to point out 2 things in the interest of education - which most financial news media gloss over. Let me preface this by saying almost any large scale "survey" has major statistical bias, and the government reports are among the worst....

First, it is critical to understand the effect of the birth/death model [Jan 27: Monthly Jobs Report & Birth/Death Model]. Worth reading the article I linked to, but in summary the government estimates how many jobs have been created by "new" or "too small" companies to be included in the survey. Many of the "jobs created" are now coming from this "guesswork". Not real surveys of job creation by larger companies. So flaw #1. There is a handy chart in the link above that shows you how dominant the birth/death model is "job creation"

Second, the unemployment rate. Keep in mind it went down last month. Why? If people give up looking for work, they drop out of the labor force and by the machinations of this report, unemployment rate goes down. Like magic. Because less people are looking for work. So just imagine if a few million more people give up in disgust. By our government calculation unemployment would plummet... heck we could be at 3% unemployment rate and our President can keep telling us how great the economy is! Booming! Flaw #2.

As a corollary to the "true unemployment" rate point above, I'd like to show you what the true unemployment rate would be if we had kept our measuring standards consistent with how they used to be measured in the early 90s and before. Instead of sub 5%, we'd be north of 12%. Just like our inflation measures, the government has been adjusting these figures over time, hand picking what should stay in and what goes out so the numbers look better.

This is unfortunately what the sheep are told, and the sheep are too busy watching Britney Spears' exploits to notice. But after 10-15-20 years of this, eventually it will reach the breaking point - i.e. when the majority of people can't afford a middle class lifestyle. Give it another decade and that's when social acrimony should reach a boiling point as my "World of Shortages" (global competition for resources) really crests.

At some point the masses will revolt... (I know that sounds over the top, but just as people in 3rd world countries now riot over food shortages, outrage leads to serious consequences - it is not at a critical mass, but if groceries continue up 10-20% a year, and fuel/heating 10-20%, along with healthcare, along with tuition, along with insurances at what point do the majority break when they are told inflation is 3%? "just trust us")


(click to enlarge)

Third, is simply the underemployment this article from CNNMoney points out. This is a systematic and secular situation - nothing to do with 1 month's report or another. It is part and parcel with the erosion of living standards - and why so many in the middle and lower economic strata turn to home equity, credit cards, etc to just get by.

So whatever the number, Wall Street in its ivory tower will cheer or boo. And the real economy will continue along, eroding the living standards of the "great middle" year by year as more and more wealth is concentrated in the top 1%. [Dec 8: Do the Bottom 80% of Americans Stand a Chance?]

But don't be fooled by any good cheer. We have long term erosion happening - a "shadow" system in labor just as we've had a "shadow" system in banking. A "service" economy is by nature, simply the transfer of the same paper money (in increasing amounts as the Federal Reserve increases money supply) trying to make everyone feel rich. Yes you get more money, but inflation eats away at all those gains so you make no "real" gains. But speculative bubbles in assets (i.e. tech stocks, i.e. homes) make us forget the issue for a few years at a time. That's the bottom line of a "service" economy where in most sectors nothing is "created". It's been catching up to us the last 5 years+; again - hidden by the home asset inflation boom.

Last point, we have 2 huge bureaucracies- federal government and healthcare. To keep the government from getting even more insolvent, we should in theory be cutting jobs from these 2 white elephants. Healthcare costs spiral out of control and we hire more people - I believe healthcare is now 16% of GDP. But how do you cut costs without cutting jobs? Thats the other dark secret - most of our recent gains in jobs are either government or healthcare-related.

So how do you fix the long term problems in either? Chicken or egg? They are sapping our national wealth away by their huge excesses/costs, but they also provide the main job growth as well. As with everything my expectation is the "kick the can down the road" theory will continue - keep growing these massive bureaucracies (create more jobs and costs now) and let another generation pay for it.

• An unemployment rate at 5% used to be called full employment. Today it's considered the sign of a recession. When the Labor Department gives its March employment report this Friday, it's important to keep in mind that the relatively low unemployment rate isn't telling the whole story about the weakness of the U.S. labor market.
• Economists surveyed by Briefing.com are forecasting a loss of 50,000 jobs from the nation's payrolls in the month. That would mark the third straight month of job declines. The unemployment rate is expected to jump to 5.0% from 4.8% in February.
• But some economists point to other readings, which show that the market is much weaker than the unemployment rate would suggest.
• For one, there has been an increasing number of people who want to work full time who are only able to find part-time jobs.
• There is also a rise in the number of those who have stopped looking for jobs because they've become discouraged by the weak market.
• Finally, there has been a decline in the number of employees working as independent contractors.
• According to the February jobs report, there were 565,000 more part-time workers who wanted full-time jobs than a year ago. That's a 21.1% jump in the number of those who are under-employed.
• In addition, a rapidly increasing number of people are being forced to take more than one job. There were 161,000 more workers in February who held more than one part-time job than there were in January. One economist said this is a further indication of how bad the market is. (thats almost 2 million more people a year, at this rate)
• Wyss said another sign of the weakened market is the steady decrease in the past year in the number of temporary employees in the business and professional services sectors. There has been a loss of more than 100,000 jobs in this category in the past 12 months. "This is a leading indicator, since these are very often the first employees cut," said Wyss.
• That's because the unemployment rate calculates only the percentage of workers who describe themselves as unemployed, divided by the number of those potential workers counted in the labor force. So under-employed people don't show up as unemployed.
• And if you look at the number of people out of work in addition to part-time workers who want full-time jobs as well as people not searching for a job at the moment, a far more alarming picture emerges. Keith Hall, the commissioner of the Bureau of Labor Statistics, which prepares the monthly jobs reports, said in Congressional testimony last month that this broader measure stood at 8.9% in February, up from 8.1% a year ago.

But don't worry - the malls will be full with people waving their $600 rebate checks by this summer.

Comments

[steveballmer:]

Whenever a presidential election cycle is on you should NEVER expect to hear the truth!

2008 Apr 02 09:03 PM

[jcrash:]

People actually quote that shadowstat guy? Inflation 8% or more in 2001,2002,2003,2004? I think not.

2008 Apr 02 09:57 PM

[sf94127:]

Good article. I would add a lot of companies are now mostly hiring "term employees"; the big drug companies do this. These term employees are quasi employees, get some benefits, but are treated as disposable items. Actually most employees in usa are treated as no more then organic machinery. No wonder many people give up.

2008 Apr 02 11:37 PM

[01GTvert:]

JCRASH - that "shadowstat" guy provides the only real, accurate data we have to gauge the performance of our economy. Don't believe the BS stats the gov't pushes...they're all lies and disinformation to keep the sheeple in their pens.

2008 Apr 03 12:24 AM

[Matt Blackman:]

Good analysis. Nominal numbers really don't mean much given the government penchant for fiction especially leading up to each election. As David Rosenberg chief economist for Merrill Lynch has said, its the rate of change in layoffs that is important and that began pointing toward a recession months ago.

2008 Apr 03 12:26 AM

[trader_murf:]

Very thoughtful article, I have reasoned these things through myself over the years having spent many years at one time in my life as an independent contractor in healthcare and was myself never considered unemployed nor eligible for unemployment benefits when I wasn't able to get work. Also I have quite a number of friends in their mid to late 50's age group laid off from corporate jobs in the past couple of years who are completely unable to find any work full or part time for any salary and I mean nothing. Ageism is alive and well. Ask any 55 year old interviewed by a 20-something doing the hiring. Some are "lucky" enough to have a pension at maybe half of what it would have been had they been allowed to work another 5 or 6 years to full pension age. Great to be considered "retired" but the truth is there isn't enough pension to cover increasing utility, food, healthcare, insurance, gas and other basic necessities, a part-time job is not a time filling luxury but a necessity. After 6 months of unemployment benefits none of us 50-somethings that nobody wants to hire are counted in unemployment stats. But then the politicians can complain about the burden we will be on the social security system in a few years. I have many years of work experience and totally agree with the above post that employees are regarded as disposable, replaceable commodities. And for anyone who believes the published government stats on anything, well, I got 3 great candidates for President...

2008 Apr 03 12:52 AM

[punk_ash:]

What an article that is, brilliant, I mean absolutely brilliant, a respite from the doomsday pundits and the CNBC clowns, and right on the topic and you back up all your predictions with solid arguments that only the blind will diasagree to.

2008 Apr 03 01:39 AM

[punk_ash:]

Just to add my own thoughts, the cost of the top tier MBA that I am paying for myself has gone from 60K for the program to 90K in just 3 years. Then, you tell me that the inflation is 3%. The Italian wine I like has risen 50% in just 2 years, ok, so that is a discretionary item, but Utilities are not. The cable, cell phone, Internet are much cheaper in most Asian countries now than we got, and not to mention they have as good service if not better, but Verizon does give you a new phone every year that you do not need to upgrade anyways, blahhhhh, all this at a time when the purchasing power is going down for us while it is going up in the Asian countries. We are all selling something, and what happened to building real products, well, all the money goes into commissions, taxes, insurance, and there is no time or incentive or money left for the real work or real products. I could not figure out what we export anymore, then, I looked up and yes, we do export agricultural products, and we do export the technology and heavy machinery, and after exporting some stellar products like Boeing and Caterpillar products, we end up squandering them on plastic toys from China, than end up in the land fill within a year. Also, people do not need a 2nd job only if they modify their life styles, why go to the ball games, or vacation, or trips to the mall, why drive SUVs, why have 50 shirts, why eat out, because we just can not afford it. No, we need to do all that, and also give our cash to Oprah and the ball players, well, they need the 200 million dollar contract.

We will learn, all societies do, and so shall we, but I am not seeing a sign of wanting to learn. Look at the rallies of the presidential candidates, can not stand listening to anything they say, they do not have a clue of what the heck is going on. We needed Ron Paul and Huckabee to run the nation for the next 8 years, see how bad they fared.

2008 Apr 03 01:52 AM

[chinooking:]

i am a (nomad worker),and i am not alone .who do you think builds houses ?we are forced to be sub-contractors to work,saving our employers l&i,ue,and health benefit expenses.we were forced into this position in the 80's by org's like Seattle's master builder's associations showing our employer's how to save money by putting the expense's on us,then with the influx of illegal alien's our pay got less and less,and our liabilities increased,i worked as a carpet layer for the same co. for 20 yr's ,not working anyplace else and still was not an employee,existing without any bennefits====hell nomad worker's == SCREWED WORKER'S

2008 Apr 03 08:54 AM

[Leonard:]

Thank you, Trader Mark. A keeper. Ditto on my thouhts, but much better said.

2008 Apr 03 09:20 AM

[Worldtravel...:]

Trader Mark, A couple of things.. Why are you reading CNN, they are amoung the most un-reliable sources for information on the planet.

Regarding the revised rules for qualifying as being un-employeed, yeah Clinton did it in the 90's but it started with Jimmy Carter in the 1970s.

As for contract vs full time employment, I think you'll see more of that as baby boomers retire and seek to suppliment their retirement income. fwiw, I am planning the same part-time gig myself as I am being forced to work just to pay my $30K/ yr. tax bills.

2008 Apr 03 09:28 AM

[notsosmart:]

is this really important? who won last nights game? thats what counts!

2008 Apr 03 11:42 AM

[nukldrager:]

The gov could have given $50 million to each person that got $600, instead of $30 billion to JPM. Maybe that would have helped the economy.

2008 Apr 03 12:11 PM

[TraderMark:]

Hi, thanks for all your comments

Antler I read from about 15-20 sources...wherever the information is, I go to. I am ambivalent about the source - everything has it's bias. Personally I prefer to read UK sources over US sources. US sources are very nationalistic and narcissitic usually i.e. everything will be fine, we are the US of A. We rule blah blah. In an age of global competition with many hungry countries competing with us our lack of good primary education, and stupid government proposals, along with a host of other things, is combining to make us uncompetitive in many ways. It is like the people need to fight against the system to survive here, as opposed to the system working for them. But like most 3rd world countries the ruling elite cheer and make policies for themselves, and the middle class gets sapped away. Personally I am shocked the one voting class that cares (people age 65+) are not storming Capital Hill - their cost of living adjustments are based on CPI and those on fixed income are getting 3-4% a year in this environment?

Anyhow we are in a global race for everything from resources to knowledge - we've been in a nice cocoon for 50 years - and our thinking is still stuck in the cocoon stage. Needs to change. I don't see any of it at this point... makes me worried.

2008 Apr 03 01:03 PM

[Jason Rines...:]

You got it right Trader Mark. If this Administration had spine they would declare an energy crisis, de-regulate, drill everywhere and I mean EVERYWHERE, soften entry regulation on nuke plants and use Treasury to subsidize alternatives such as biodeisel, solar and coal liquification. This would create millions of jobs and we could become an energy exporter and compete globally by providing something besides agrigulture and metals the world desperately needs to grow. That would add trillions to the economy and we could afford the benefits the boomers were promised. As it stands Americans will be taxed hard and likely, benefits will need to be cut as well in the next decade.

As to your point about 65+ marching on Washington, I believe all classes except the 3% of the wealthiest of Americans will want to storm Washington by 2010. Most of the ignorant masses are just experiencing real pain in this economy. While they'll get a temporary reprieve from stimilus, without a new major innovate product we create (not just a nation of brokers) the economy and country is headed for Depression and complete Socialism.

2008 Apr 03 05:15 PM

[steveballmer:]

I like you iThinkBig!

2008 Apr 04 02:12 AM

[DavidD:]

I'm 54 years old and I can vouch for the statement that ageism is alive and thriving in the U.S. of A. I was "downsized" from my IT job at a prominent Wall St. financial services firm in 2003 (clue: this firm's CEO lost the company 9 billion USD in 2007 while cashing in on 141 million of stock options). It took me three years to find comparable work (still 10 K less than my 2003 salary). During that period I was asked in interviews how I could I manage working with all these younger people in their firm.

Did you want to take a guess how many age discrimination cases have been prosecuted by the U.S. Dept. of Justice since 2001? How bout nada.

2008 Apr 04 11:57 PM