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If Friday's U.S. Employment Data Confused You...

Economics / Economic Statistics Feb 06, 2011 - 10:56 AM GMT

By: Trader_Mark

... this story via AP should help 'clear' it up.  There remains a lot of confusion even by economists who follow this stuff for a living.  Essentially the larger story is traditional businesses are not hiring at pace so large swathes of America are either (a) dropping out of the workforce or (b) becoming self employed.  Hence the new workers in category b respond affirmatively when the household survey calls and asks "are you working?".  Even if working means selling some of those old Beanie Babies on their new fangled Ebay store. 

Of course calling 60,000 households and trying to extrapolate that over a 130M workforce is a bit aggressive but that is the survey that calculates the unemployment rate. Further, please recall that if one is not actively seeking work for 4 weeks, they are no longer unemployed per American government statistics.

• The Labor Department survey of company payrolls showed a net gain of 36,000 jobs in January. That's scarcely one-fourth the number needed to keep pace with population growth.  
• The government uses a separate survey of households to calculate the unemployment rate. It calls 60,000 households and asks people if they're working or looking for a job.  This survey includes some people not counted in the payroll survey: the self-employed, farm workers and domestic help. It also includes those who work at small companies.  (this is the survey that calculates the unemployment rate)
• By contrast, in the payroll survey, about 140,000 businesses and government agencies send forms to the Labor Department showing how many people are on the payroll and how many hours they worked. The payroll survey can be slower than the household survey to recognize startup companies. (this is the survey that shows jobs created or lost)

So as Americans cannot find work in traditional routes, they are turning to self employment:

• The number of people who described themselves as self-employed rose by 165,000 to 9.7 million in January, the report said. 

The 0.8% drop in unemployment rate over the past 2 months is very rare - but a lot of this has happened since people are deserting the workforce altogether.   Another 200,000 seemed to disappear last month.

• The last time the unemployment rate fell so far so fast was in 1958, when it dropped to 6.2 percent from 7.1 percent in two months. At the time, the economy was bouncing back from an eight-month recession.   The rate is falling now in part because some people without jobs have stopped looking. The number who have given up looking rose to 2.8 million last month, from 2.6 million in December.

"U-6" which is the broader measure of unemployment remains stubbornly over 16% but dropped last month; of course it is also affected by the issues above, and unfortunately appears to be understating the situation as well.

• The number of people who are employed part-time but would rather be working full-time fell to 8.4 million from 8.9 million in December. Combined with the 13.9 million unemployed and people who have given up looking for work, roughly 25 million people were "underemployed" last month. They amounted to 16.1 of the labor force, down from 16.7 percent in November.

Of course all these numbers have been made 'sunny side up' versus how they were measured in the 80s and 90s - by both parties.  When I was reverse engineering current standards back to how things used to be measured it essentially added 3-4% to the unemployment rate so our 9% is closer to 13% in the 1980s methodology.  [Oct 2, 2009: True September Unemployment in America Reaches 14%; Our System is Broken] On top of that if we had a normal workforce participation rate we'd add another 2.5% or so on top of that. Bigger picture, we continue to evolve into a bifurcated society, where frankly due to outsourcing and innovation, many people are no longer needed (until the next housing bubble of course).   [Sep 22, 2009: BusinessInsider - The Real Problem is the Economy Does Not Need you Anymore]  And of the jobs being created, many are a far cry from what create a middle class living, and often don't pay the ones that disappeared the past 10+ years, even before adjusting for inflation.  [Feb 3, 2011: CNNMoney - Jobs Coming Back, but the Pay Stinks!] --------------------------- Meanwhile the "socialists" to the north, have now recovered all the jobs lost during the Great Recession and pathetically added more jobs than the U.S. did in January despite 1/10th of the population.  And no Canada did not blame snow for the inability to add jobs in January... apparently their firms still somehow hire people during snowstorms.

• Canada's labor market generated a better-than-expected 69,200 new jobs in January, moving the country ahead of other developed nations in recovering all the jobs lost during the recession.  The January employment boost was about four times greater than economists had predicted and the largest since last April. Economists had expected 15,000 new jobs.
• Statistics Canada said Friday that there are 327,000 more Canadians working since January 2010, and 467,000 more jobs since the downturn ended in July 2009. (in U.S. terms this would be equivalent to 4.5 million jobs added)
• To weather the recession, the Conservative government created 222,000 jobs through a mix of tax cuts, unemployment benefits, infrastructure spending and industry support in the wake of the global financial crisis.  Since then, the Canadian economy has recovered at a faster pace than its G-7 counterparts.
• With these economic gains, the country's finance minister Jim Flaherty has said the government is on its way to balance budgets by 2015 through planned spending freezes and the end of stimulus funding.

By Trader Mark

http://www.fundmymutualfund.com

Mark is a self taught private investor who operates the website Fund My Mutual Fund (http://www.fundmymutualfund.com); a daily mix of market, economic, and stock specific commentary.

See our story as told in Barron's Magazine [A New Kind of Fund Manager] (July 28, 2008)

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Comments

Rick 07 Feb 11, 05:16

Friday's U.S. Employment Data Confused Every One From here on in, it will be becoming increasingly impossible for any one to determine just what the current U6 rate is in the United States because of highly problematic government accounting, but I think that a good 'conservative' estimate would place it at somewhere between 19%-20%.