Big Miss: Nonfarm Payrolls +74,000 vs. 205,000 Expected; Unemployment Rate 6.7% as Labor Force Shrinks by 347,000

Initial Reaction

Once again, the stats reveal much weakness.

• Big Miss: Nonfarm Payrolls rose by 74,000. The median forecast of 37 economists was 205,000 jobs according to USA Today.
• The civilian institutional population rose by 178,000 but the labor force declined by 347,000.
• Nonfarm payroll growth is the smallest number since January 2011.

Clearly, this is yet another bad report, with people dropping out of the labor force like mad.

Blaming the Weather

Amusingly, USA Today reports that "Paul Ashworth of Capital Economics says severe winter was the main culprit behind the disappointing job gains."

Did economists not know it was cold outside when they gave USA today their estimates? I guess not.


December BLS Jobs Statistics at a Glance

• Nonfarm Payroll: +74,000 - Establishment Survey
• Employment: +143,000 - Household Survey
• Unemployment: -490,000 - Household Survey
• Involuntary Part-Time Work: +48,000 - Household Survey
• Voluntary Part-Time Work: -127,000 - Household Survey
• Baseline Unemployment Rate: -0.3 to 6.7% - Household Survey
• U-6 unemployment: +0.0 to 13.1% - Household Survey
• Civilian Non-institutional  Population: +178,000
• Civilian Labor Force: -347,000 - Household Survey
• Not in Labor Force: +525,000 - Household Survey
• Participation Rate: -0.2 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 population rose by  2,395,000.
• In the last year the labor force fell by 547,000.
• In the last year, those "not" in the labor force rose by 2,943,000
• Over the course of the last year, the number of people employed rose by a mere 1,374,000 (an average of 114,500 a month)

The population rose by over 2 million, but the labor force fell by over a half-million. That's your declining unemployment rate in a nutshell.
 
Note last bullet point above.

The household survey shows a gain of employment averaging a mere 114,500 a month. Meanwhile, the payroll survey shows a rise of 182,000 jobs a month.

The rational explanation is a massive growth in part-time jobs.

I asked the BLS to investigate this but they do not have the data. ADP has the data but denied the request citing privacy issues.

There are no privacy issues - All ADP need do is take counts of people working more than one job and compare to historical trends.

December 2013 Jobs Report

Please consider the Bureau of Labor Statistics (BLS) December 2013 Employment Report.

The unemployment rate declined from 7.0 percent to 6.7 percent in December, while total nonfarm payroll employment edged up (+74,000), the U.S. Bureau of Labor Statistics reported today. Employment rose in retail trade and wholesale trade but was down in information.

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Unemployment Rate - Seasonally Adjusted


Employment History Since January 2009



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Change from Previous Month by Job Type



Hours and Wages

Average weekly hours of all private employees fell 0.1 to 34.4 hours. Average weekly hours of all private service-providing employees rose 0.1 to 33.2 hours.

Average hourly earnings of production and non-supervisory private workers rose $0.05 to $20.32. Average hourly earnings of private service-providing employees rose $0.03 to $20.12.

Real wages have been declining. Add in increases in state taxes and the average Joe has been hammered pretty badly. For 2013, one needs to factor in the increase in payroll taxes for Social Security.

For further discussion of income distribution, please see What's "Really" Behind Gross Inequalities In Income Distribution?

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 2012



Birth Death Model Adjustments For 2013



Birth-Death Notes

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

In general, analysts attribute much more to birth-death numbers than they should. Except at economic turns, BLS Birth/Death errors are reasonably small.

For a discussion of how little birth-death numbers affect actual monthly reporting, please see BLS Birth/Death Model Yet Again.

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 6.7%. 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 13.1%. 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, the unemployment rate would be well over 9%.

And the discrepancy between the Household Survey and the Establishment survey sticks out like a sore thumb.

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