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Friday, January 08, 2010 10:59 AM


Jobs Contract 24th Straight Month; Unemployment Rate Stays At 10.0%


So much for ideas that the string of job losses would end this month. And with a massive revision to the Birth/Death model coming up, it might be another 2 months before we see it happen.

I would like to point out upfront what a joke the announced unemployment rate is. According to Bernanke himself, it should take 100,000 jobs a month to keep up with the birth rate and immigration. Instead the civilian labor force dropped by 661,000 and those not in the labor force dropped by a whopping 843,00 workers.

There are now a whopping 2.5 million people without a job but want one, yet are not counted as unemployed.

So yes, the "official unemployment rate" can hold its own or even drop with this kind of nonsense, but the announced unchanged unemployment rate holding steady at 10% is a brutal distortion of reality at best.

Now for a closer look at the report ....

This morning, the Bureau of Labor Statistics (BLS) released the December Employment Report.

Nonfarm payroll employment edged down (-85,000) in December, and the unemployment rate was unchanged at 10.0 percent, the U.S. Bureau of Labor Statistics reported today. Employment fell in construction, manufacturing, and wholesale trade, while temporary help services and health care added jobs..




Establishment Data



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Highlights

  • 85,000 jobs were lost in total vs. 11,000 jobs last month.
  • 53,000 construction jobs were lost vs. 27,000 last month.
  • 27,000 manufacturing jobs were lost vs. 41,000 last month.
  • 04,000 service providing jobs were lost vs. 58,000 added last month.
  • 10,000 retail trade jobs were lost vs. 15,000 last month.
  • 50,000 professional and business services jobs were added vs. 86,000 added last month.
  • 35,000 education and health services jobs were added vs. 40,000 added last month.
  • 25,000 leisure and hospitality jobs were lost vs. 11,000 last month.
  • 21,000 government jobs were lost vs. 0 lost last month.

A total of 81,000 goods producing jobs were lost (higher paying jobs). Professional services contributed to to the plus side.

Note: some of the above categories overlap as shown in the preceding chart, so do not attempt to total them up.

Index of Aggregate Weekly Hours

Work hours were flat at 33.2. Short work weeks contribute to household problems. Moreover, before hiring begins at many places, work weeks will increase.

Birth Death Model Revisions 2008



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Birth Death Model Revisions 2009



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Birth/Death Model Revisions

After the typical in January in which the Birth/Death Model revisions bore some semblance of reality, the Birth/Death numbers remain in deep outer space.

At this point in the cycle birth death numbers should have been massively contracting for months. The BLS is going to keep adding jobs through the entire recession in a complete display of incompetence.

Please note that one cannot subtract or add birth death revisions to the reported totals and get a meaningful answer. One set of numbers is seasonally adjusted the other is not. In the black box the BLS combines the two coming out with a total. The Birth Death numbers influence the overall totals but the math is not as simple as it appears and the effect is nowhere near as big as it might logically appear at first glance.

BLS Black Box

For those unfamiliar with the birth/death model, monthly jobs adjustments are made by the BLS based on economic assumptions about the birth and death of businesses (not individuals). Those assumptions are made according to estimates of where the BLS thinks we are in the economic cycle.

The BLS has admitted however, that their model will be wrong at economic turning points. And there is no doubt we are long past an economic turning point.

Here is the pertinent snip from the BLS on Birth/Death Methodology.

  • The net birth/death model component figures are unique to each month and exhibit a seasonal pattern that can result in negative adjustments in some months. These models do not attempt to correct for any other potential error sources in the CES estimates such as sampling error or design limitations.
  • Note that the net birth/death figures are not seasonally adjusted, and are applied to not seasonally adjusted monthly employment links to determine the final estimate.
  • The most significant potential drawback to this or any model-based approach is that time series modeling assumes a predictable continuation of historical patterns and relationships and therefore is likely to have some difficulty producing reliable estimates at economic turning points or during periods when there are sudden changes in trend.

Household Data
In December, both the number of unemployed persons, at 15.3 million, and the unemployment rate, at 10.0 percent, were unchanged. At the start of the recession in December 2007, the number of unemployed persons was 7.7 million, and the unemployment rate was 5.0 percent.

Unemployment rates for the major worker groups—adult men (10.2 percent), adult women (8.2 percent), teenagers (27.1 percent), whites (9.0 percent), blacks (16.2 percent), and Hispanics (12.9 percent)—showed little change in December. The unemployment rate for Asians was 8.4 percent, not seasonally adjusted.

The civilian labor force participation rate fell to 64.6 percent in December. The employment-population ratio declined to 58.2 percent.

The number of persons employed part time for economic reasons (sometimes referred to as involuntary part-time workers) was about unchanged at 9.2 million in December and has been relatively flat since March. These individuals were working part time because their hours had been cut back or because they were unable to find a full-time job.

Persons Not in the Labor Force

About 2.5 million persons were marginally attached to the labor force in December, an increase of 578,000 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.

Among the marginally attached, there were 929,000 discouraged workers in December, up from 642,000 a year earlier. (The data are not seasonally adjusted.) Discouraged workers are persons not currently looking for work because they believe no jobs are available for them. The remaining 1.6 million persons marginally attached to the labor force had not searched for work in the 4 weeks preceding the survey for reasons such as school attendance or family responsibilities.
Table A-5 Part Time Status



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The chart shows there are 9.16 million people are working part time but want a full time job. A year ago the number was 8.1 million.

Note the trend in part-time work. In a recovery it should be headed down quickly. The reason is employers increase the hours of part-time workers before they start hiring full-time workers.

The key take-away from this series are the millions of workers whose hours will rise before companies start hiring more workers.

Table A-12

Table A-12 is where one can find a better approximation of what the unemployment rate really is. Let's take a look



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Grim Statistics

The official unemployment rate is 10.0%. However, if you start counting all the people that 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.

It reflects how unemployment feels to the average Joe on the street. U-6 is 17.3%. Both U-6 and U-3 (the so called "official" unemployment number) are poised to rise further although most likely at a slower pace than earlier this year.


Looking ahead, there is no driver for jobs and states in forced cutback mode are making matters far worse.

Table A



Explaining The Drop In Unemployment Rate


Table A explains how the unemployment rate remained steady

Unemployment held firm even though 85,000 jobs were lost and it should take at least 100,000 jobs just to keep up with demographics.

Please note the drop in the civilian labor force by 661,000. Employment dropped by only 589,000 so technically the unemployment rate dropped but not enough to show up in the reported numbers.

In a typical recovery, the participation rate and the civilian labor force should go up not down. The reason is people hear there is a recovery, hear things are getting better, hear the talk about "green shoots" and think there might be a job if they go looking.

Revisions in the Establishment Survey Data

With the release of January 2010 data on February 5, 2010, the Current Employment Statistics survey will introduce revisions to nonfarm payroll employment, hours, and earnings data to reflect the annual benchmark adjustments for March 2009 and updated seasonal adjustment factors. Not seasonally adjusted data beginning with April 2008 and seasonally adjusted data beginning with January 2005 are subject to revision.

Revisions in the Household Survey Data

Effective with the release of data for January 2010, revisions will be introduced into the population controls for the household survey. These changes reflect the routine annual updating of intercensal population estimates by the U.S. Census Bureau.

Click here for Additional Revision Information from the BLS.

Addendum:

My friend "BC" just pinged me with this comment ...

"The combined drop in employment and increase in "not in labor force" is equivalent to ~1% (12% annualized) of the labor force for Dec. and 2% (8% annualized) total since Sept. Good grief."

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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