On November 5, the administration was singing the praises of an economic recovery that allegedly created 1.1 million jobs this year. Before we dive into what’s really happening with jobs, please consider Remarks by the President on the October Jobs Report
THE PRESIDENT: Good morning, everybody. We are in the middle of a tough fight to get our economy growing faster, so that businesses across our country can open and expand, so that people can find good jobs, and so that we can repair the terrible damage that was done by the worst recession in our lifetimes. Today we received some encouraging news.
Based on today’s jobs report, we’ve now seen private-sector job growth for 10 straight months. That means that since January, the private sector has added 1.1 million jobs. Let me repeat, over the course of the last several months, we’ve seen over a million jobs added to the American economy. In October, the private sector has added 159,000 jobs. And we learned that businesses added more than 100,000 jobs in both August and September as well. So we’ve now seen four months of private-sector job growth above 100,000 [jobs], which is the first time we’ve seen this kind of increase in over four years.
151,000 Jobs In October? Really?
Inquiring minds just might be wondering how we created 151,000 jobs in October. As it turns out, about 100,000 of them was a seasonal adjustment, and I am not even talking about the much maligned BLS Birth-Death Model that 10 months out of 12 presumes the economy added jobs that no once can see.
I am talking about regular “seasonal adjustment” factors, and last month was a doozie. The latest issue of Barrons discusses the The magic of seasonal adjustment.
THE JOBS REPORT FOR OCTOBER was released by the Bureau of Labor Statistics on Friday, and at first blush was surprisingly strong, much stronger, indeed, than expected. Payrolls expanded by 151,000 and the two previous months’ were revised upward. But hold the hurrahs.
Happily, the always astute Stephanie Pomboy of MacroMavens provided a quickie explanation:
“The seasonal bar which the payroll data must jump was (inexplicably and dramatically) lowered from prior Octobers.”
Thus in October 2009, the BLS set the bar at 870,000 jobs, similar to the 840,000 it anticipated in October 2008. This year, by contrast, it lowered the bar to 768,000. Mumbo, jumbo, payrolls presented “an upside surprise” of 100,000.
Household Survey vs. Establishment Survey
Please note that the monthly jobs number and the unemployment rate are derived from two different surveys. The reported jobs number comes from the Establishment Survey (a sample of actual payroll tax collections, seasonally adjusted, then further massaged by the infamous Birth-Death model (a guess by the government as to how many jobs it missed that were newly created). Historically 10 to 11 times out of 12, the birth-death adjustment goes up. Every January it goes down. It sometimes goes down in July.
The unemployment number is actually derived from the Household Survey (a phone sample that asks people if they have a job, and if not do they want a job and are looking for a job). Unless you are looking for a job and do not have one, you are not unemployed. If you worked as little as 1 hour, congratulations, you are counted in the ranks of the employed.
Both surveys are detailed in the BLS monthly jobs report. Let’s take another look at the BLS October Jobs Report.
Scroll down to page 5: HOUSEHOLD DATA Summary table A. Household data, seasonally adjusted.
click on chart for sharper image
The first item of interest is the Civilian Noninstitutional Population (i.e the population aged 16 and up not in school, prison, or other institutions).
In the last year, the table shows Civilian Noninstitutional Population rose by 1,980,000 an average gain of 165,000 potential workers a month.
Next consider the gain in employment.
Household Survey Shows Loss of 330,000 Jobs
In September 2010, employment was 139,391,000. In October 2010, employment was 139,061,000. That is a LOSS of 330,000 jobs in October, a loss even the BLS recognizes. Meanwhile the president is crowing about an alleged gain of 151,000 jobs.
This discrepancy does not add up and it gets worse the deeper you dig.
In the last year, the number of employed rose from 138,242,000 to 139,061,000 – a gain of 819,000 jobs (not a million). That translates to 68,250 jobs a month.
Given the Noninstitutional Population rose by 165,000 potential workers a month, adding 68,250 jobs a month does not look so good. Moreover, by that comparison, the unemployment rate ought to be soaring.
Instead, via Participation Rate magic the unemployment rate actually dropped from 10.1% to 9.6%.
The Participation Rate is the percentage of the Noninstitutional Population in the workforce (holding a job or actively seeking a job). This is where the game comes in. If you are not actively seeking a job, whether you want one or not, you are not considered unemployed, nor are you considered to be in the labor force.
In the last month alone, (last line on the above table), 462,000 people dropped out of the labor force, collapsing the participation rate from 64.7% to 64.5%.
In the last year, those Not in the Labor Force rose from 82,696,000 to 84,626,000.
Allegedly, 1,930,000 people dropped out of the workforce even though the Civilian Noninstitutional Population rose by 1,980,000!
That’s a net discrepancy of 3,910,000 individuals who disappeared, a rather amazing bit of magic.
Unemployment Rate Magic
The BLS claims the unemployment rate dropped to 9.6% from 10.1%.
If we discount the net discrepancy and simply add 1,930,000 back into the ranks of the unemployed as well as the labor force, the number of unemployed becomes 16,773,000 and the labor force becomes 155,834,000.
That would make the unemployment rate 10.76%.
The above math is not entirely accurate because it does not reflect those entering or graduating from school or those retiring. However, we can probably discount school factors on the basis those entering school and those graduating from school are approximately the same.
The net effect then is retirement and people otherwise “vanishing” from the workforce via the falling participation rate. Did a net 3,910,000 individuals retire in the last year? If not, the rest just “vanished”.
In a subsequent post I have still more about “vanishing jobs”. There is much more to the unemployment story.
Finally, I am quite interested in retirement trends and asked the social security administration a set of questions about historic retirement numbers. I will post the answers, if and when they come.
Mike “Mish” Shedlock
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