Jobs Contract 13th Straight Month; Unemployment Rate Soars to 7.6%

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

Nonfarm payroll employment fell sharply in January (-598,000) and the unemployment rate rose from 7.2 to 7.6 percent, the Bureau of Labor Statistics of the U.S. Department of Labor reported today. Payroll employment has declined by 3.6 million since the start of the recession in December 2007; about one-half of this decline occurred in the past 3 months. In January, job losses were large and widespread across nearly all major industry sectors.





Nonfarm Payroll employment has shrunk to mid-2006 levels.

Establishment Data Changes

There were massive backward revisions in the number of jobs this month. The BLS explains it as as follows.

The establishment survey data in this release have been revised as a result of the annual benchmarking process and the updating of seasonal adjustment factors.

In addition, household survey data for January 2009 reflect updated population estimates. Also, January 2009 industry data shown in table A-11 of this release have been converted to the 2007 Census Industry Classification System. Historical data have not been revised.

Establishment Data

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Highlights

• 598,00 jobs were lost in total
  
• 111,000 construction jobs were lost
• 207,000 manufacturing jobs were lost
• 279,000 service providing jobs were lost
• 45,000 retail trade jobs were lost
• 121,000 professional and business services jobs were lost
• 54,000 education and health services jobs were added
  
• 28,000 leisure and hospitality jobs were lost
  
• 6,000 government jobs were added
  

A total of 319,000 goods producing jobs were lost (higher paying jobs), and the service sector was clobbered once again as well. Government, the last place one wants to see jobs, added 6,000 jobs. The number government jobs has declining sharply, a welcome event, but I expect this to change in the months ahead along with various stimulus programs.

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

Birth Death Model Revisions 2008-2009



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Birth/Death Model Revisions

As is typical in January, the Birth/Death Model revisions seem to bear some semblance of reality lost in most other months of the year.

A quick check on the Mortgage Lender Implode-O-Meter shows that 329 Major US lending operations have imploded. This number appears to be topping.

However, even if fewer lenders are going under, there is still decreasing activity in the sector and many small 1-5 person shops are throwing in the towel. Those small 1-5 person businesses are not properly accounted for in the Birth-Death Model. At this point in the cycle birth death numbers should be massively contracting. Month after month, with the exception of January the BLS is assuming more jobs were created by new businesses than lost by businesses closing shop.

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

The number of persons who worked part time for economic reasons (sometimes referred to as involuntary part-time workers) was essentially unchanged in January at 7.8 million; however, this measure was up by 3.1 million over the past 12 months. Included in this category are persons who would like to work full time but were working part time because their hours had been cut back or because they were unable to find full-time jobs.

Persons Not in the Labor Force

About 2.1 million persons (not seasonally adjusted) were marginally attached to the labor force in January, about 400,000 more than 12 months earlier. These individuals 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 734,000 discouraged workers in January, up by about 270,000 from a year earlier.

Discouraged workers are persons not currently looking for work because they believe no jobs are available for them. The other 1.4 million persons marginally attached to the labor force in January 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 7.8 million people are working part time but want a full time job. A year ago the number was 4.7 million.

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 7.6%. 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 13.9%. Both U-6 and U-3 (the so called "official" unemployment number) are poised to rise further.

Looking ahead, I expect the service sector to continue to weaken. Mall vacancy rates are rising and a huge contraction in commercial real estate is finally started. There is no driver for jobs and states in forced cutback mode are making matters far worse.

Unemployment is a lagging indicator, it is likely to continue rising until sometime in 2010.

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