Along with many others, I am pondering the latest employment numbers. Strong opinions are the norm.
Many are steadfast in their interpretations, some critically so, especially Bondad who blasted Zero Hedge in a scathing attack "No Rick Santelli and Zero Hedge, One Million People Did Not Drop Out of the Labor Force Last Month."
Does Bondad Have a Point?
The short answer is yes. I wonder if I escaped attack because of a statement in my post Nonfarm Payroll +243,000 ; Unemployment Rate 8.3%; Those Not in Labor Force Rose an Amazing 1,177,000 as follows:
Some of those labor force numbers are due to annual revisions. However, the point remains: People are dropping out of the labor force at an astounding, almost unbelievable rate, holding the unemployment rate artificially low.Emphasis in red as written, not added.
I could have, and should have expounded on the first sentence, even though I stick with what I said in the second sentence.
Bondad is generally a good guy and he also has the coolest dog in blogosphere, even though we fundamentally differ on politics.
Meet Bondad's Dog "Weimar"
Zero Hedge replied in Explaining Yesterday's Seasonally Adjusted Nonfarm Payroll "Beat"
Does Zero Hedge have a point?
Yes, even though he is scrambling hard to make it.
Been there. Done that. It happens. No one is perfect, certainly not me.
Trim Tabs has Firm Opinion Too
BLS Data Skewed?
Based on federal income tax receipts Trim Tabs asks Is BLS Data Skewed?
Our estimate of a slowly growing economy is based primarily upon daily income tax collections. Either there is something massively changed in the income tax collection world, or there is something very suspicious about today’s Bureau of Labor Statistics hugely positive number. We continue to check and recheck our analysis of income tax collections. We are aware that another service believes that incomes are growing faster than we do. So far we have not found any errors or discrepancies in our work, but if we do, we will let you know.
I keep repeating that the BLS refuses to use the data embedded in income tax collections to be able to report real time jobs and wages. Why does it refuse? Could the reason it refuses to use real time data on jobs and incomes be because perhaps this jobs number is politically motivated? The entire world is looking at US job creation as a proxy on how well Obama is doing? Could the Obama administration be pressuring its economist employees to create the best possible new jobs number?
Readers should know by now that I discount most conspiracy theories. It's not that I believe conspiracies don't happen, but rather those that do are quickly exposed. Paulson used a bazooka right out in the open to force Bank of America to merge with Merrill Lynch. Geithner and others are guilty as well. It was all very visible and quickly reported.
Is the BLS purposely manipulating numbers to benefit Obama? I rather doubt it. Someone would know and yap.
Yet, I have no explanation for payroll tax data. Some things do not add up, and it's best to look at things from more than one angle.
So let's take a closer scrutiny of the data to see what's happening.
The Case for Headline Payroll +243,000
Let's start off with the absolute best case anyone can make for the bullish jobs case.
The above chart is condensed from the January 2012 Non-Manufacturing ISM Report On Business®ISM Questions and Answers
- Was I surprised by the services ISM? Yes, I was.
- Does it help explain the headline job number? Yes, it does.
- Does it explain the unemployment rate? No, it doesn't.
There are still questions about seasonal adjustments, confirming data, etc. but those are relatively good ISM numbers.
Let's turn our attention to the unemployment rate.
Civilian Labor Force
The BLS labor force numbers seem suspect. The labor force is less now than when the recession ended 2.5 years ago.
Current Labor Force: 154,395,000.
June 2009 Labor Force: 154,730,000.
Based on trends, the labor force ought to be close to 160,000,000.
Boomer demographics can explain part of the "trendline failure", but not all of it. The US is adding work-aged population every year, just at a decreasing rate. In other words, the labor force should be rising, even if at a reduced rate (at least in theory).
In 2000, it took about 150,000 jobs a month to keep up with birthrate and immigration, Recently Bernanke stated the number is 125,000 jobs. Could it be lower? Certainly, but the number is not zero.
Total Nonfarm Employees
There are currently 132,409,000 nonfarm employees. In December of 2000 there were 132,481,000 employees. How's that for job growth?
Civilian employment is currently 141,637,000.
In May of 2005 civilian employment was 141,609,000.
Civilian Unemployment Rate
The recession ended in June of 2009. The labor force was 154,730,000. The Labor force is now 154,395,000. Is this credible? If it's not credible, then neither is the unemployment rate?
Labor Force 155,000,000 8.6%
Labor Force 156,000,000 9.2%
Labor Force 157,000,000 9.8%
Labor Force 158,000,000 10.4%
Labor Force 159,000,000 10.9%
Labor Force 160,000,000 11.5%
At a very modest labor force growth to 157 million (a mere 90,800 a month since the recession ended), the unemployment rate would be 9.8%.
Using Bernanke's estimate of 125,000 jobs a month, the labor force would be 158,480,000 and the unemployment rate would be 10.6%. Growing at the trend, the unemployment rate would be 11.5%.
Has Time Rewritten Every Lie?
To paraphrase Barbara Streisand: " Can it be all so simple then, or has time rewritten every lie ?"
Are You "Really" Unemployed?
Link if video does not play: The Unemployment Game Show: Are You "Really" Unemployed?
Please play the video. It's hilarious.
In regards to the wild jump in "those not in the labor force" in relation to growth in overall population, the BLS notes "the population increase was primarily among persons 55 and older and, to a lesser degree, persons 16 to 24 years of age. Both these age groups have lower levels of labor force participation than the general population."
The BLS argument may sound plausible but I do not buy it. Persons 55-62 will still generally be looking for a job. Even many older than 65 will still be looking for a job because they cannot afford to retire.
Instead, I propose a combination of three factors.
- For reasons noted in the "are you unemployed?" video, people stopped looking for jobs and are not counted in the labor force. Yes, this is on purpose but it predates Obama.
- Many people have exhausted 100 weeks of unemployment benefits and have no income coming in at all. Some in that category retired and are now gone from the labor force, skimping by on social security benefits.
- Still others took part-time work and thus are considered employed.
Gallup Chimes In
Gallup reports that unemployment is 8.6% not seasonally-adjusted. That is close to the BLS number, but Gallup is based on those 18 and older while the BLS is 16 and older.
Otherwise, the sampling metrics are similar. The biggest difference appears in the actual count of underemployment (unemployed + those wanting a full-time job but only finding part-time work).
Please consider a pair of charts from the Gallup report U.S. Unemployment Up, to 8.6% in January
Percentage of US Workers in Part-Time Jobs, Wanting Full-Time Employment
Underemployment, a measure that combines the percentage of workers who are unemployed with the percentage working part time but wanting full-time work, surged to 18.7% in January. This is a worsening from the 18.3% of December but is still below the 19.0% of a year ago.
BLS Alternative Measures
The BLS "alternative" measure of underemployment is 16.2% (not seasonally adjusted) compared with 18.7% as surveyed by Gallup. As noted above, Gallup does not include results of those aged 16 and 17 while the BLS does (otherwise Gallup's numbers would be higher still).
Which set of numbers tells the better story? Here's a hint "It's not the BLS".
I will stick with what I have said on many occasions "People are dropping out of the labor force at an astounding, almost unbelievable rate, holding the unemployment rate artificially low."
The reason is not a recount based on the 2010 census, nor is it purely demographics, nor is it Obamanomics. The reason is severe and sustained fundamental economic weakness, coupled with existing purposely-distorted definitions of what constitutes "unemployment".
Originally posted at Mish's Global Economic Trend Analysis
© Mike "Mish" Shedlock
Investment Advisor Representative