Data Point Versus Data Series

Its important to recall that
economic data – indeed, any data series – is not a snapshot, but a moving
picture. And even moving picture requires context.


Let’s use a few specific examples.
We know, for example, why the unemployment rate is so low: NILFs.
(Not-in the–Labor-Force) The common (but incorrect) answer simply assumes
many more people are getting jobs. The reality is that people have been
dropping out of the labor force at an unprecedented rate. 5% unemployment
reflects a dearth of job seekers, not a plethora of new jobs.

Some of the talking heads have even
touted the drop in long term Unemployed to 17.8% from over 20% in May (BLS Table A-9)
as a positive. How can that be bad, you may wonder? The answer is, it’s all
relative: Historically, an unemployment rate of 5% is typically accompanied
by long term jobless rate of 10.7% — not 17.8%, according to the same EPI release that was widely touted as revealing better
income data.

Indeed, let’s have a look at that improving
quality of Personal Income data
:  After nearly 4 years of below
average wage expansion
, we see for the first time post-recession, that
there is now greater growth in above average wages.
Taken in isolation, this appears to be a positive development. Let’s use what
we know to be true to see if we can determine what this might mean and why.

First, consider the reason for the
shift. Since the end of the recession, we have seen a hiring surge in
low-paying jobs: retail, leisure, hospitality, and fast food
industries. Many of these new, lower-wage workers had been laid off from
higher paying jobs with better benefits (read: health care). Those people who
were willing to take these lesser paying employment were doing so out of
necessity. We also hear anecdotally about many of these low wage jobs are
actually a second income.

4 years of minimum wage hiring
spree later, these industries, by and large, have a sufficient number of
workers to fill these new slots. They no longer need to mass hire, as they have
achieved adequate staffing levels. I would expect to see these sectors shift
towards the replacement of departing workers, rather than brand new hires. That
is consistent with the BLS hiring data as well as the EPI
of this data.

Drilling further down into the most
recent BLS data, we can see which sectors the Labor Department reported growth
in that have "above average wages:" most prominent are Construction,
Transportation, and Warehousing. Half century low interest rates are the reason
for the strong Construction data. Its too bad we cannot export houses, perhaps
that might be a way reduce our current account deficit.

Another sector that enjoyed robust
growth was Transportation – namely, trucking. While this represents strength in
the economy – it is the economy of China, and not the United States – that is
the primary beneficiary of this. As this discussion of West coast port activity
makes clear (see: Preparing
for a monster delivery
) everything associated with the importation of
finished goods from China is a growth business. Short term, job growth for
truckers and warehouse foremen is a new positive. Long term, this enormous
balance of trade deficit is not helping the U.S. get its structural problems
under control.      

Following a mild recession and a
horrific market crash, a large group of people have been taking lower paying,
jobs with weaker benefits. A combination of post-bubble economics,
globalization and outsourcing are the primary reasons why. After a four year
hiring spree, these lower paying industries have most of the employees they
need. It’s somewhat ironic that the
secondary sectors of transporting and warehousing these overseas manufactured
goods – formerly made here, now outsourced – is a growth sector. That’s hardly
cause for celebration.

Then there’s inflation. Despite
Thursday’s CPI data, unless you live in a cave, you know inflation has been robust. I noted Wednesday that real wages continue to fall
behind real prices, regardless of whether you look at a 20 year or a 5 year time period. The Bureau of Labored Statistics (to
borrow Barron’s Gene Epstein term) can use whatever hedonics and seasonal
adjustments they desire, but it doesn’t change reality one bit. Inflation is
eating into limited income gains of most consumers faster than their wages are
rising. Unless this trend is reversed, this bodes poorly for the future
standard of living of U.S. consumers.

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What's been said:

Discussions found on the web:
  1. bhaim commented on Jul 15

    Many baby boomers are NILFs:

    “Baby boombers are not waiting until age 62 or 65 to stop working. Over 4 million already have left the labor force either because they are disabled or because they have retired.”

    CBO Report
    The Early Exit of Baby Boomers from the Labor Force

  2. Golden Q commented on Jul 15

    Economic data definitely needs to be seen as a series and not just as a snapshot, especially in such volatile places as the financial marketplace. Lately I’ve been relying on because they’ve got pretty good charts and other financial info to gauge the entire moving picture, are there any other sites that you recommend?

  3. fred c. dobbs commented on Jul 15

    Baby boomers are not behind the drop in labor force participation. In fact, the only age group that shows an increase in participation rates since the recession is for those over 55. Participation rates have risen from 23% in 1995 to 25% in 2000 to 28% in 2004.
    The explanation is that the first wave of baby boomers is reaching 55, thus pulling down the average age of that group. These baby boomers are, for the most part, still working.
    The sharpest declines have been for teenagers and other young adults, who are probably going to school. But participation rates are falling for adults between 25 and 55.

  4. bhaim commented on Jul 15


    The story you just linked to says the following:

    “Participation rates for adult men declined, as more took early retirement and disability benefits improved”

    The report from the Boston Federal Reserve says the following:

    “The participation shortfall is especially pronounced at young and prime ages”

    Here’s the original study from the Boston Federal Reserve:

  5. Barry Ritholtz commented on Jul 15

    When you retire, you are no longer considered part of the labor force . . .

    disabled is a different category entirely

    Neither of these issues impacts the labor participation rate, which remains significantly below historic trend

  6. Jim Glass commented on Jul 15

    The participation rate as last reported 66.0% The same number of months after the trough of the last recession (in 10/1994)it was 66.7% — that’s a 1% difference.

    Add every single person in that 0.7% to the current “unemployed” category and the unemployment rate goes up to 6%, which is within the measurement margin of error of the 5.8% of then.

    So, same amount of time into the new cycle, same unemployment rate, at worst. If in fact we have a “non bad” explanation for some of those 0.7% being out of the work force today — such as being in school — then the employment condition is clearly better today than then.

    Also, long-term unemployment (15+ weeks) was much worse at this time in the last cycle, higher even in absolute terms than today — 2.96 million versus 2.35 million — in spite of the work force being 17 million larger today, which works out to a more than 40% higher rate then, 2.25% to 1.58%. Pretty bad, compared to today.

    Which leads to an interesting question that’s gone unanswered as far as I’ve seen by those who say discouraged workers leaving the job market make the employment situation much worse today than it seems by the unemployment rate.

    To wit: Since a below historical average unemployment rate indicates a larger than average percentage of persons who look for a job are in fact able to get one, why would there be so many more discouraged workers compared to when the unemployment rate showed fewer could get one, and the average length of unemployment was longer, such as this time in the last cycle? (And why have discouraged workers stopped identifying themselves as such in the BLS surveys?)

    The BLS has a suggestion. It notes that the decline in the labor force is concentrated among the young (under 25) and that among these the decline started even during the boom, as the unemployment rate among them fell to a 35-year low — so the decline in their labor force participation was not caused by hard times leading to discouragement, but by more of them staying in school longer (and by more young married women who have kids choosing not to work).

    But that was during the boom. Since then?

  7. BusinessBlogCasting – Audio commented on Jul 16

    The Fundamentals Stink: Buy Stocks

    My latest Real Money column, "The Fundamentals Stink: Buy Stocks" is posted. It is loosely based on yesterday’s discussion, Data Point Versus Data Series. It explains why even if the crowd is wrong about the economy (short term), they can…

  8. Abbi Vakil commented on Jul 16

    Hi Barry
    Not sure if this is mentioned elsewhere, but something to note about the under-stated CPI is the adjustment for quality improvements, wherein, for example, if you compare today’s TVs (or dishwashers, healthcare, whatever) to those from 10 years ago, the fact that you get more in today’s product than you did several years ago means that the CPI-adjusted price of that item is lower. This would be true if you could actually buy the older model but since you can’t, the actual monies spent out of pocket are the same. A good TV is still $500+, same as it was last year and the year before that…

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