BLS Jobs Report: +54,000, Unemployment +9.1%; Awful at First Glance, Merely Bad Beneath the Surface

Thoughts on the Jobs Report Thoughts on the Jobs Report

Last month I commented that on the surface the job reports was the "best back-to-back reports we have seen for years", not as measured by a typical recovery but as measured by this so-called recovery. Beneath the surface things were awful.

This month things are awful at first glance and simply bad beneath the surface. The number of employed rose by 105,000 which is an anemic number, but for the first time in a long time those in the labor force rose by a considerable amount: 272,000.

That suggests, momentarily that people think there may be jobs and are looking for them. That is a good thing, except for the fact they are not finding jobs. The number of unemployed rose by 167,000 and the unemployment rate ticked up by .1% to 9.1%.

Economists projected a drop to 8.9%, I called for a rise to 9.2%.

For the last two months I commented "It is very questionable if this pace of jobs keeps up." Clearly it didn't and this certainly cannot all be blamed on a Tsunami in Japan. The entire global economy is slowing rapidly.

Mish on Yahoo Finance Daily Ticker on Slowing Global Economy; U.S. Manufacturing ISM Plunge; Order Backlog and New Orders Barely Above Contraction

China's Manufacturing Slowest in 9 Months, New Orders Suggest Manufacturing May Have Already Peaked; Australia Biggest GDP Drop in 20 Years

Recall that 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.

Digging deeper into the Household Survey, we see some more interesting data. In the last year, the civilian population rose by 1,814,000. Yet the labor force dropped by 544,000. Those not in the labor force rose by 2,358,000.

In January alone, a whopping 319,000 people dropped out of the workforce. In February another 87,000 people dropped out of the labor force. In March 11,000 people dropped out of the labor force. In April, 131,000 dropped out of the labor force.

At long last, the labor force expanded. This month it rose by 272,000. The 5-month total for 2011 is +276,000.

Many of those millions who dropped out of the workforce would start looking if they thought jobs were available. Indeed, in a 2-year old recovery, the labor force should be rising sharply as those who stopped looking for jobs, once again started looking. Instead, an additional 276,000 people dropped out of the labor force in the first four months of the year.

Were it not for people dropping out of the labor force, the unemployment rate would be well over 11%.

I do not know if this is a one-month anomaly with the labor force rising. However, if it continues (and that would be a good thing), it will be very difficult for the unemployment rate to drop.

April 2011 Jobs Report

Please consider the Bureau of Labor Statistics (BLS) May 2011 Employment Report.

Nonfarm payroll employment changed little (+54,000) in May, and the unemployment rate was essentially unchanged at 9.1 percent, the U.S. Bureau of Labor Statistics reported today. Job gains continued in professional and business services, health care, and mining. Employment levels in other major private-sector industries were little changed, and local government employment continued to decline.

Unemployment Rate - Seasonally Adjusted



Nonfarm Employment - Payroll Survey - Annual Look - Seasonally Adjusted

Notice that employment is lower than it was 10 years ago.

Nonfarm Employment - Payroll Survey - Monthly Look - Seasonally Adjusted



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Ignoring the effects of the census, in the last 8 months of a recovery 2 years old, the economy is averaging 150,000 jobs a month. That is enough to hold the unemployment rate flat but is very poor as recoveries go.

Nonfarm Employment - Payroll Survey Details - Seasonally Adjusted



Total nonfarm employment has increased by 1.8 million, or 1.4 percent, since its trough in February of 2010. Between January 2008 and February 2010, the U.S. economy had lost 8.8 million jobs.

Statistically, 127,000 jobs a month is enough to keep the unemployment rate flat.

Average Weekly Hours



Index of Aggregate Weekly Hours



Average weekly hours for both all employees and production employees remained unchanged in May.

The index of aggregate weekly hours for all employees in the private sector increased by 0.1 percent. Since a low point in October 2009, the index has increased by 3.6 percent.

Average Hourly Earnings vs. CPI



"Success" of QE2

• Average hourly earnings of all employees in the private sector increased by 6 cents in May to $22.98. Hourly earnings are up 1.8 percent over the year.


• Between April of 2010 and April 2011 the consumer price index for all urban consumers (CPI-U) increased by 3.1 percent.

Not only are wages rising slower than the CPI, there is also a concern as to how those wage gains are distributed.

BLS Birth-Death Model Black Box

The big news in the BLS Birth/Death Model is the BLS has moved to quarterly rather than annual adjustments.

Effective with the release of January 2011 data on February 4, 2011, the establishment survey will begin estimating net business birth/death adjustment factors on a quarterly basis, replacing the current practice of estimating the factors annually. This will allow the establishment survey to incorporate information from the Quarterly Census of Employment and Wages into the birth/death adjustment factors as soon as it becomes available and thereby improve the factors.

For more details please see Introduction of Quarterly Birth/Death Model Updates in the Establishment Survey

In recent years Birth/Death methodology has been so screwed up and there have been so many revisions that it has been painful to watch.

Quarterly rather than annual adjustments can only help the process.

The Birth-Death numbers are not seasonally adjusted while the reported headline number is. In the black box the BLS combines the two coming out with a total.

The Birth Death number influences the overall totals, but the math is not as simple as it appears. Moreover, the effect is nowhere near as big as it might logically appear at first glance.

Do not add or subtract the Birth-Death numbers from the reported headline totals. It does not work that way.

Birth/Death assumptions are supposedly made according to estimates of where the BLS thinks we are in the economic cycle. Theory is one thing. Practice is clearly another as noted by numerous recent revisions.

Birth Death Model May 2011



BLS Back in Outer-Space

Do NOT subtract 206,000 from the headline number. That is statistically invalid. That said, the BLS is back in outer-space.

It is clear the economy is slowing and the BLS has not picked it up.

Household Data




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In the last year, the civilian population rose by 1,814,000. Yet the labor force dropped by 544,000. Those not in the labor force rose by 2,358,000.

Were it not for people dropping out of the labor force, the unemployment rate would be well over 11%.

Table A-8 Part Time Status



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There are now 8,500,000 workers whose hours may rise before those companies start hiring more workers.

The is little change in these numbers for a year.

Table A-15

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



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Distorted Statistics

Given the total distortions of reality with respect to not counting people who allegedly dropped out of the work force, it is hard to discuss the numbers.

The official unemployment rate is 9.1%. 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.

While the "official" unemployment rate is an unacceptable 9.0%, U-6 is much higher at 15.8%.

Things are much worse than the reported numbers would have you believe, and for the second consecutive month the beneath the surface numbers were bad-to-awful.

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