Unemployment Rate Dips to 8.6% as 487,000 Drop Out of Labor Force

Quick notes about the "falling" unemployment rate:

• In the last year, the civilian population rose by 1,726,000. Yet the labor force fell by 67,000. Those not in the labor force rose by 1,793,000. 
 
• In November, those "Not in Labor Force" rose by a whopping 487,000. If you are not in the labor force, you are not counted as unemployed.
 
• Were it not for people dropping out of the labor force, the unemployment rate would be well over 11%.

Jobs Report at a Glance

Here is an overview of November Jobs Report, today's release.

• US Payrolls +120,000
• US Unemployment Rate Declined .4 to 8.6%
• Civilian labor force fell by 315,000
• Those Not in Labor Force rose by 487,000
  
• Participation Rate fell .2 percentage points to 64.0%, nearly matching a low last seen in 1984
  
• Actual number of Employed (by Household Survey) rose by 278,000
• Unemployment fell by 594,000
  
• Civilian population rose by 172,000
  
• Average workweek for all employees on private nonfarm payrolls was unchanged at 34.3 hours for the second consecutive month.
• The average workweek for production and nonsupervisory employees on private nonfarm payrolls edged down 0.1 hour to 33.6 hours in November.
• Average hourly earnings for all employees in the private sector fell by 2 cents to $23.18
  
• Government employment decreased by 20,000
• The private sector has only recovered 33 percent of jobs lost in the peak-to-trough period of January 2008 to February 2010.

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.

For the second month the labor force rose. This is a welcome sign. However, were it not for people dropping out of the labor force for the past two years, the unemployment rate would be well over 11%.

November 2011 Jobs Report

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

The unemployment rate fell by 0.4 percentage point to 8.6 percent in November, and nonfarm payroll employment rose by 120,000, the U.S. Bureau of Labor Statistics reported today. Employment continued to trend up in retail trade, leisure and hospitality, professional and business services, and health care. Government employment continued to trend down.

Unemployment Rate - Seasonally Adjusted



Nonfarm Employment - Payroll Survey - Annual Look - Seasonally Adjusted



Notice that actual employment is lower than it was nearly 11 years ago.

Nonfarm Employment - Payroll Survey - Monthly Look - Seasonally Adjusted



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

In the last year of the weakest recovery on record, 2.5 years old, the economy averaged about 131,000 jobs a month.

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

Nonfarm Employment - Payroll Survey Details - Seasonally Adjusted



Average Weekly Hours



Index of Aggregate Weekly Hours



Average Hourly Earnings vs. CPI



"Success" of QE2 and Operation Twist

• Over the past year, average hourly earnings of all employees have increased by 1.8 percent. The consumer price index for all urban consumers (CPI-U) was up 3.6 percent from October 2010 to October 2011.
 
• Average hourly earnings for all employees in the private sector fell by 2 cents to $23.18 in November after increasing 12 cents over the prior 2 months.
 
• 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 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 BLS has moved to quarterly rather than annual adjustments to smooth out the numbers.

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.

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 Adjustments For 2011



Birth-Death Notes

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

It is exceptionally rare to see negative numbers in birth-death adjustments in months other than January and July. Data for much of this year actually seems reasonable.

Household Survey Data



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In the last year, the civilian population rose by 1,726,000. Yet the labor force fell by 67,000. Those not in the labor force rose by 1,793,000.

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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Part-time status is essentially right where it was a year ago.

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 easy to misrepresent the headline numbers. Digging under the surface, the drop in the unemployment rate is nothing  but a statistical mirage.

The official unemployment rate is 8.6%. 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.

While the "official" unemployment rate is an unacceptable 8.6%, U-6 is much higher at 15.6%.

Falling unemployment rate would normally be considered a good thing, but not if it is happening because 1,793,000 people stopped looking for work.

Things are much worse than the reported numbers would have you believe. The entire economic picture is on very thin ice given the clear slowdown in the global economy.

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