Another View Of The BLS Employment Report

by: Mark Bern, CFA

By Mark Bern, CPA CFA

The headlines, as you know, were all positive, indicating that employment is increasing and the economy is on the mend. When new jobs are added to the economy there is no denying that the result should be economic growth. But, amount of growth may depend more on what kind of jobs are being created and who is obtaining those jobs than just the raw number of jobs created. In other words, the quality of jobs really does matter.

The monthly Employment Situation Summary for February from the Bureau of Labor Statistics (BLS) contains some very positive statistics. Here is two of what I would call the most positive quotes from the report:

Total nonfarm payroll employment rose by 227,000 in February. Private-sector employment grew by 233,000, with job gains in professional and business services, health care and social assistance, leisure and hospitality, manufacturing, and mining. (See table B-1.) ...

The change in total nonfarm payroll employment for December was revised from +203,000 to +223,000, and the change for January was revised from +243,000 to +284,000. ...

In February, 2.6 million persons were marginally attached to the labor force, essentially unchanged from a year earlier. (The data are not seasonally adjusted.) These individuals were not in the labor force, wanted and were available for work, and had looked for a job sometime in the prior 12 months. They were not counted as unemployed because they had not searched for work in the 4 weeks preceding the survey. (See table A-16.)

Both of these quotes elicited headlines, especially the first paragraph, which is the content that everyone watches intently to discover the pulse of the economy. The second quote is also positive and suggests that the strength of the economy was even better than originally reported for December and January.

But hidden within the mass of numbers were a couple of tidbits that I, personally, found disturbing. This first quote below tells us that a significant number of people, 2.6 million, wanted work and were available to work but were not counted as part of the labor force because they were only "marginally attached." Why I find this disturbing is because if these people truly wanted to work and were willing to work but couldn't find employment for whatever reason that they should be counted. One excuse is that they may be in school. Excuse me, but my son is in college, has a part-time research job and is counted as employed and part of the labor force. He really doesn't consider himself part of the labor force, yet because his inclusion and that of others like him makes unemployment go down, he is included. If he were to lose that job but stay in school, he would not be counted as unemployed. His inclusion and that of others in his same situation then would make unemployment go up. Thus they are not included.

You see if the equation, such as used for determining the unemployment percentage, has an equal increase in both the denominator and the numerator the resulting percentage increases. This would provide "worse" view of the economy and the employment situation. In this instance the, were we to add 2.6 million to both the number of unemployed (12.8 million + 2.6 million = 15.4 million) and to the total labor force (154.9 million + 2.6 million = 157.5 million) and then divided the unemployed by the total labor force the result would be 9.9% unemployment.
That has been going on for a long time, so at least the BLS has been consistent in its application.

But the other piece of this particular report that disturbs me even more has to do with people who are multiple jobs. If a person already working in a job receives another job, even if both were part-time, a new job is created, according to BLS. It is a job. The job is new. It will add to the economy (how much is debatable). But should it reduce unemployment? I don't think so! There is no newly employed person coming from the unemployment roll, so there shouldn't be a new job created reported, nor should the job count as an increase in the number of employed persons, thus reducing the unemployment percentage.

But here we go again, as BLS reports that the total number of workers who work multiple jobs increased by a whopping 234,000. You can find this by going to the BLS link to "table 16A" and subtracting the number of multiple-job holders in January 2012 from the same number for February 2012 to find the increase.

Now isn't it interesting that the total number of jobs added in February is 227,000 and the total number of people who already had jobs but added another job is even more at 234,000? In my mind that implies that we may have lost 7,000 full-time jobs, net. I don't know about you, but I don't find this very encouraging in terms of economic growth prospects.

Don't get me wrong here. I'm not a doom-and-gloom sort of guy. I generally have a positive outlook toward the future. I see earnings at major multinational companies growing at sustainable levels for years to come, as long as the U.S. is not dragged into another recession. But this sort of reporting by our government (regardless of who is in charge) does not inspire my opinion of government's ability to report the facts and usable information.

The sad part is that we are collectively paying billions of dollars in taxes annually to support the accumulation and dissemination of such information that seems to be skewed toward making whoever is in office at the time look like they are doing a better job than they really are. I don't look to my government for marketing or spin. I just want the unadulterated truth.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.