Initial Reaction

The payroll survey shows a net gain of 162,000 jobs vs. an expectation of 230,000 jobs. This broke a six-month string of +200,000 jobs.

Digging into the details, things look far worse.

The household survey shows a gain in employment of only 16,000. This is the fourth month in the last five that the household survey was substantially weaker than the headline number.

The average employment gain in the past five months is 125,200 vs. an average gain in jobs over the same period of 230,800 per month.

Is a trend forming? If so, it doesn’t bode well. That said, the household survey is volatile and over time the data series merge. The question now is which one is right? At turns, the household survey tends to lead.

The labor force fell by 64,000. Those not in the labor force increased by 268,000. The unemployment rate fell by 0.1% thanks to a decline in the labor force greater than the rise in employment.

BLS Jobs Statistics at a Glance

  • Nonfarm Payroll: +142,000 – Establishment Survey
  • Employment: +16,000 – Household Survey
  • Unemployment: -80,000 – Household Survey
  • Involuntary Part-Time Work: -234,000 – Household Survey
  • Voluntary Part-Time Work: -136,000 – Household Survey
  • Baseline Unemployment Rate: -0.1 at 6.1% – Household Survey
  • U-6 unemployment: -0.2 to 12.0% – Household Survey
  • Civilian Non-institutional Population: +206,000
  • Civilian Labor Force: -64,000 – Household Survey
  • Not in Labor Force: -268,000 – Household Survey
  • Participation Rate: -0.1 at 62.8 – Household Survey

Additional Notes About the Unemployment Rate

  • The unemployment rate varies in accordance with the Household Survey, not the reported headline jobs number, and not in accordance with the weekly claims data.
  • In the past year the working-age population rose by 2,270,000.
  • In the last year the labor force rose by 524,000.
  • In the last year, those “not” in the labor force rose by 1,745,000
  • In the past year, the number of people employed rose by 2,189,000 (an average of 182,417 a month)

Please note that over the course of the last year, the working-age population rose by more than the number of people employed. In normal times, the unemployment rate would have gone up slightly. Instead, the unemployment rate fell from 7.2% to 6.1%.

Over 100% of the decline in unemployment in the past year is due to people dropping out of the labor force, rather than strength in the economy!

August 2014 Employment Report

Please consider the Bureau of Labor Statistics (BLS) July 2014 Employment Report.

Total nonfarm payroll employment increased by 142,000 in August, and the unemployment rate was little changed at 6.1 percent, the U.S. Bureau of Labor Statistics reported today. Job gains occurred in professional and business services and in health care.

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Unemployment Rate – Seasonally Adjusted

Nonfarm Employment January 2003 – August 2014

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Nonfarm Employment Change from Previous Month by Job Type

Hours and Wages

Average weekly hours of all private employees has been flat for six months at 34.5 hours. Average weekly hours of all private service-providing employees was flat at 33.3 hours.

Average hourly earnings of private workers rose $0.06 to $20.68. Average hourly earnings of private service-providing employees rose $0.06 to $20.47.

For discussion of income distribution, please see What’s “Really” Behind Gross Inequalities In Income Distribution?

Birth Death Model

Starting January, I dropped the Birth/Death Model charts from this report. For those who follow the numbers, I keep this caution: Do not subtract the reported Birth-Death number from the reported headline number. That approach is statistically invalid. Should anything interesting arise in the Birth/Death numbers, I will add the charts back.

Table 15 BLS Alternate Measures of Unemployment

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Table A-15 is where one can find a better approximation of what the unemployment rate really is.

Notice I said “better” approximation not to be confused with “good” approximation.

The official unemployment rate is 6.1%. However, if you start counting all the people who want a job but gave up, all the people with part-time jobs that want a full-time job, all the people who dropped off the unemployment rolls because their unemployment benefits ran out, etc., you get a closer picture of what the unemployment rate is. That number is in the last row labeled U-6.

U-6 is much higher at 12.0%. Both numbers would be way higher still, were it not for millions dropping out of the labor force over the past few years.

Labor Force Factors

  1. Discouraged workers stop looking for jobs
  2. People retire because they cannot find jobs
  3. People go back to school hoping it will improve their chances of getting a job
  4. People stay in school longer because they cannot find a job
  5. Disability and disability fraud

Were it not for people dropping out of the labor force over the past several years, the unemployment rate would be well over 9%. Some of those dropping out genuinely retired. However, millions retired involuntarily. That is, they needed to retire and collect social security because they had no job and no income. Such folks are no longer in the labor force even if they want a job. The falling unemployment rate is very deceiving, painting a picture of improvement that simply does not exist.

A gallup survey on the economy better reflects how the average Joe feels: 38% Think Economy Getting Better, 56% Say Worse.

Mike “Mish” Shedlock