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Friday, September 06, 2013 10:31 AM

Establishment Survey: +169K Jobs, June and July Revised Lower; Household Survey: Employment -115,000, Not in Labor Force +516,000; BLS in Wonderland

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Initial Reaction

The establishment survey showed a gain of 169,000 jobs.

For the second consecutive month, the previous two months were revised lower. The employment change for July was revised down by 58,000 (from +162,000 to +104,000). Last month the BLS revised June employment down by 7,000 (from +195,000 to +188,000).

This month, the BLS said June was still not correct and revised June lower by another 16,000 to +172,000.

See the change in pattern here? Earlier in the year, revisions were to the plus side.

In spite of the above, the unemployment rate dropped 0.1 to 7.3%. After all, it's the household survey that determines the unemployment rate, not the establishment survey baseline jobs number. So let's take a look at the factors.

Explaining the Unemployment Rate Drop

  • Employment fell by 115,000 
  • Those in the labor force fell by 312,000 
  • The civilian population rose by 203,000.
  • The Participation Rate (The labor force as a percent of the civilian noninstitutional population) fell 0.2 to 63.2%, beating the low of 63.3% dating back to 1979.

Employment fell by 115,000 but the labor force fell more (in spite of a population rise of 203,000). That's why the unemployment rate dropped.

August BLS Jobs Statistics at a Glance

  • Payrolls +169,000 - Establishment Survey
  • US Employment -115,000 - Household Survey
  • US Unemployment -198,000 - Household Survey
  • Involuntary Part-Time Work -334,000 - Household Survey
  • Voluntary Part-Time Work +211,000 - Household Survey
  • Baseline Unemployment Rate -0.1 - Household Survey
  • U-6 unemployment -0.3 to 13.7% - Household Survey
  • Civilian Labor Force -312,000 - Household Survey
  • Not in Labor Force +516,000 - Household Survey
  • Participation Rate -0.2 at 63.2 - Household Survey

Quick 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 last year, those "not" in the labor force rose by 1,554,000
  • Over the course of the last year, the number of people employed rose by 2,006,000 (an average of 167,000 a month)
  • In the last year the number of unemployed fell from 12,483,000 to 11,316,000 (a drop of 1,167,000)
  • Percentage of long-term unemployment (27 weeks or more) is 37.9%, an increase of 0.9 from last month.
  • The mean duration of unemployment also increased this month, from 36.6 weeks to 37 weeks.
  • Once someone loses a job it is still very difficult to find another.
  • 7,911,000 workers who are working part-time but want full-time work. A year ago there were 8,043,000. There has been almost no improvement in a year. This is a volatile series.

August 2013 Jobs Report

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

Total nonfarm payroll employment increased by 169,000 in August, and the unemployment rate was little changed at 7.3 percent, the U.S. Bureau of Labor Statistics reported today. Employment rose in retail trade and health care but declined in information.

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

Unemployment Rate - Seasonally Adjusted

Employment History Since January 20000

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Change from Previous Month by Job Type

Hours and Wages

Average weekly hours of all private employees rose 0.1 to 34.5 hours. Average weekly hours of all private service-providing employees was flat at 33.3 hours. Average hourly earnings of all private workers rose $0.05 to $24.00. Average hourly earnings of private service-providing employees rose $0.05 to $23.76.

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 7.3%. 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 13.7%. 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 over 9%. In addition, there are 7,911,000 people who are working part-time but want full-time work.

Grossly Distorted Statistics

Digging under the surface, much of the drop in the unemployment rate over the past two years is nothing but a statistical mirage coupled with a massive increase in part-time jobs starting in October 2012 as a result of Obamacare legislation.

Wonderland Statistics

Compared to recent Gallup surveys, these BLS stats regarding the base unemployment rate and the alternative measures as well are straight from wonderland. For details, please see Gallup Says Seasonally-Adjusted Unemployment Climbs to 8.6%; Who to Believe (Gallup or the BLS)?

I believe Gallup. Thus, I expect more downward revisions in jobs, and upward revisions in the unemployment rate.

Mike "Mish" Shedlock

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