Household Survey: Number of Employed Declines by 119,000 as Those Not in Labor Force Rises by Spectacular 581,000; Yes, Virginia, It's a Recession

Recession Numbers Second Consecutive Month

Yesterday I was asked if the services ISM changed my view about the US being in recession. I responded that I wanted to see today's job report first.

Well I have seen it and the report is nothing short of a certified disaster.

Yes, Virginia, based on the household survey, and manufacturing reports, the regional Fed surveys the US is in recession.

The one survey that is different is the ISM services report. The question is why? This is speculation, but I believe ISM has too few companies in the survey, and perhaps large companies are still growing while medium and small-sized firms are not. The other possibility is the ISM report is an outlier for another reason.

Regardless, last month the the household survey had a decline of 195,000 jobs and this month the decline is 119,000. Thus, in the last two months, there are 314,000 fewer employed.

At turns, the household survey leads. I strongly suggest the economy has turned.

Jobs Report at a Glance

Here is an overview of today's release.

• US Payrolls +96,000 - Establishment Survey
• June revised lower from +64,000 to +45,000.
• July revised lower from +163,000 to +145,000.
• Three-month average is a weak +95,000 - Establishment Survey
• US Employment -119,000  - Household Survey
• US Unemployment Rate -.02 at 8.1% - Household Survey
• The Civilian Labor Force fell by 368,000. Otherwise the unemployment rate would have risen.
• Average workweek for all employees on private nonfarm payrolls steady at 34.4 hours
• The average workweek for production and nonsupervisory employees on private nonfarm payrolls steady at 33.7 hours.
• Average hourly earnings for all employees in the private nonfarm workers sector fell by 1 cent.

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.

Quick Notes About the Unemployment Rate

• US Unemployment Rate -.2 to 8.1% 
• This month the number of people employed fell by 119,000.
• In the last two months, the number of people employed fell by 314,000!
•  In the last year, the civilian population rose by 3,695,000. Yet the labor force only rose by 971,000.
• This month the Civilian Labor Force fell by 368,000.
• Last month, those "not" in the labor force increased by 348,000 to 88,340,000, another record high. 
• This month we set another record high with a whopping 581,000 dropping out of the labor force. If you are not in the labor force, you are not counted as unemployed. 
• In the last year, those "not" in the labor force rose by 2,723,000 
• Over the course of the last year, the number of people employed rose by 2,347,000. 
• Participation Rate fell .02 to 63.5%;
• There are 8,031,000 workers who are working part-time but want full-time work, a decrease of 215,00. This one the only bright spot in the report.
• Long-Term unemployment (27 weeks and over) was 5.033 million a decline of 152,000 (likely an artifact of the decline in the labor force).
• Were it not for people dropping out of the labor force, the unemployment rate would be well over 11%.

Over the past several years people have dropped out of the labor force at an astounding, almost unbelievable rate, holding the unemployment rate artificially low. Some of this was due to major revisions last month on account of the 2010 census finally factored in. However, most of it is simply economic weakness.

August 2012 Jobs Report


Please consider the Bureau of Labor Statistics (BLS) August 2012 Employment Report.

Total nonfarm payroll employment rose by 96,000 in August, and the unemployment rate edged down to 8.1 percent, the U.S. Bureau of Labor Statistics reported today. Employment increased in food services and drinking places, in professional and technical services, and in health care.

Click on Any Chart in this Report to See a Sharper Image

Unemployment Rate - Seasonally Adjusted



Nonfarm Employment - Payroll Survey - Annual Look - Seasonally Adjusted



Employment is above the total just prior to the 2001 recession, and about where it was in 2005.

Nonfarm Employment - Payroll Survey January 2008 through July 2012 - Seasonally Adjusted



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Between January 2008 and February 2010, the U.S. economy lost 8.8 million jobs.

Since the employment low in February 2010, nonfarm payrolls have expanded by about 4.4 million jobs. Of the 8.8 million jobs lost between January 2008 and February 2010, approximately 50% percent have been recovered (not accounting for normal demographics growth)

Statistically, 125,000+- jobs a month is enough to keep the unemployment rate flat. For a discussion, please see Question on Jobs: How Many Does It Take to Keep Up With Demographics?

Since the beginning of the year, job growth has averaged 139,000 per month, compared with an average monthly gain of 153,000 in 2011.

The average employment gain over the last 30 is barely enough (statistically speaking) to make a dent in the unemployment rate.

Yet, the civilian unemployment rate has fallen from 9.8% to 8.1%.

Current Report Jobs



Average Weekly Hours



Index of Aggregate Weekly Hours



Average Hourly Earnings vs. CPI



BLS Birth-Death Model Black Box

The BLS Birth/Death Model is an estimation by the BLS as to how many jobs the economy created that were not picked up in the payroll survey.

The Birth-Death numbers are not seasonally adjusted, while the reported headline number is. In the black box the BLS combines the two, coming up 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 Adjustments For 2011



Birth Death Model Adjustments For 2012



Birth-Death Note

Once again: Do NOT subtract the Birth-Death number from the reported headline number. That approach is statistically invalid.

Household Survey Data



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In the last year, the civilian population rose by 3,695,000. Yet the labor force only rose by 971,000. Those not in the labor force rose by 2,723,000 to yet another record high 88,921,000.

That is an amazing "achievement" to say the least, and as noted above most of this is due to economic weakness not census changes.

Decline in 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

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

Part Time Status



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There are 8,031,000 workers who are working part-time but want full-time work. The decline from last month is the one bright spot in the report, but the data series is very volatile. Unless this becomes a trend, the number is essentially meaningless.

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 8.1%. 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.

U-6 is much higher at 14.7%. Both numbers would be way higher still, were it not for millions dropping out of the labor force over the past few years.

Duration of Unemployment



Long-term unemployment remains in a disaster zone with 40% of the unemployed in the 27 weeks or longer category.

Grossly Distorted Statistics

Given the complete distortions of reality with respect to not counting people who allegedly dropped out of the work force, it is easy to misrepresent the headline numbers.

Digging under the surface, the drop in the unemployment rate over the past two years is nothing but a statistical mirage. Things are much worse than the reported numbers indicate.

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