Initial Reaction
Some of the skew in last month’s job report related to the government shutdown was taken back today, as expected. The labor force stats and participation rate were exceptions, and details reveal much weakness.
- Last month employment fell by 735,000 due to the shutdown, this month it rose by 818,000.
- Averaging the two months, household survey employment only rose by 83,000 (a mere 43,500 per month)
- Last month, the change in those not in the labor force was +932,000. This month, the change was -268,000.
- Last month the labor force declined by 720,000. This month it only rose by 455,000.
- Averaging the two months, the labor force fell by 265,000. This explains the drop in the unemployment rate despite anemic employment growth on average.
- Last month the participation rate fell 0.4 percentage points to a new low, this month, only 0.2 percentage points were taken back.
Ignoring the decline and the rise in employment over the past two months, the huge discrepancy between the household survey and the establishment survey persists.
In essence, this was a bad report, with people dropping out of the labor force like mad.
Revisions
This was the fifth straight month of revisions to the establishment survey but the revisions were relatively minor.
The change in total nonfarm payroll employment for September was revised from +163,000 to +175,000, and the change for October was revised from +204,000 to +200,000. With these revisions, employment gains in September and October combined were 8,000 higher than previously reported.
Explaining the Unemployment Rate
- Unemployment fell by 0.3 percentage points
- Employment rose by 818,000
- Those in the labor force rose by 455,000
- The civilian population rose by 186,000.
- The Participation Rate (The labor force as a percent of the civilian noninstitutional population) rose 0.2 to 63.0%.
Employment rose more than the labor force, so the unemployment rate fell as further explained in my “initial reaction” above.
October BLS Jobs Statistics at a Glance
- Payrolls +203,000 – Establishment Survey
- US Employment +818,000 – Household Survey
- US Unemployment -365,000 – Household Survey
- Involuntary Part-Time Work -331,000 – Household Survey
- Voluntary Part-Time Work +90,000 – Household Survey
- Baseline Unemployment Rate -0.3 to 7.0% – Household Survey
- U-6 unemployment -0.5 to 13.2% – Household Survey
- Civilian Labor Force +455,000 – Household Survey
- Not in Labor Force -268,000 – Household Survey
- Participation Rate +0.2 at 63.0 – Household Survey
Additional Notes About the Unemployment Rate
November 2013 Jobs Report
Please consider the Bureau of Labor Statistics (BLS) November 2013 Employment Report.
The unemployment rate declined from 7.3 percent to 7.0 percent in November, and total nonfarm payroll employment rose by 203,000, the U.S. Bureau of Labor Statistics reported today. Employment increased in transportation and warehousing, health care, and manufacturing.
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Unemployment Rate – Seasonally Adjusted
Employment History Since January 2009
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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 rose 0.1 to 33.3 hours.
Average hourly earnings of production and non-supervisory private workers rose $ 0.03 to $ 20.28. Average hourly earnings of private service-providing employees rose $ 0.03 to $ 20.09.
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 7.0%. 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 13.2%. 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
- Discouraged workers stop looking for jobs
- People retire because they cannot find jobs
- People go back to school hoping it will improve their chances of getting a job
- People stay in school longer because they cannot find a job
- Disability and disability fraud
Were it not for people dropping out of the labor force, the unemployment rate would be well over 9%.
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.
Digging beneath the surface, the snap-back from the government shutdown was nowhere near as strong as it should have been in the household survey. More on the the discrepancy between the two reports shortly.
Mike “Mish” Shedlock
http://globaleconomicanalysis.blogspot.com
Mish’s Global Economic Trend Analysis
