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"Officer Barbrady, I call shenanigans!"
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Friday’s Non-farm payroll passed with very little commentary, as many have been otherwise distracted with the credit meltdown and increased market volatility.
As I explained early Friday morn, I expected a punk employment report: general economic gloominess amongst the populace, a weak ADP Report, and lastly, the Birth/Death factor.
However, a closer look reveals NFP was actually much worse than originally reported. There are two elements in this, each of which we have reviewed in the past:
First, contrary to its history, the BLS Birth/Death Model added 26,000 jobs for July. According to Bill King, that’s:
"the most ever jobs for July since the model went dynamic in 1999. In July 2005, the model deleted 72k jobs. Last July it initially deleted 57k jobs . . ." Here are the ‘post-benchmark’ B/D totals for July since the model went dynamic: -6k (’99), +11k (00), -13k (01), -61k (02), -83k (03), -80k (04), -72k (05), +21k (06).
Like Bill, we want to know why such a bulge in B/D extrapolated jobs now — in a much weaker economic environment?
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The true reveal of the employment situation came from Civilian Labor Force Participation Rate — what we in the past have called NiLF: Not in Labor Force. It has dropped 0.8% to 66.1% from a year ago’s 66.9%.
Now, you may think that a 0.8% drop doesn’t sound like a whole lot. But apply that to the total Labor Force of 153 million. That means another 1.224 million people are swept off the employment rosters — but instead of ending up in the Unemployment Rate, thei simply get dropped from the data.
At the very least, a more accurate read of the Unemployment Rate is 5.4% — not the 4.6% reported (last July’s unemployment rate was 5%).
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Source:
Employment status of the civilian population by sex and age
Table A-1. Employment status of the civilian population by sex and age
BLS HOUSEHOLD DATA, August 3, 2007
http://www.bls.gov/news.release/empsit.t01.htm
Are you saying that you can’t trust your government?
Do professionals actually make moves based on the erroneous data? I would think firms have enough resources to drill down to reality…
Do GOVT officials/employees believe their own numbers or are they quite conscious of their fabricated nature???
SINGER:
If this government has no problem lying us into war, why would it bother them to fabricate unemployment numbers?
Yep, and in the fifth comment on Friday, I mentioned the big discrepancy between the average July B/D number -48,000 and what we got this time around.
http://bigpicture.typepad.com/comments/2007/
08/nfp-day.html#comments
Although, I will say one thing in BLS’s defense. These are non-seasonally adjusted numbers (raw numbers). The raw number for July was a job loss of -1,333,000. Seasonally adjusted that turns into +92,000
Take away the b/d add of +26,000 and stick in a more appropriate -48,000 (or worse) and you’d have -1,408,000. Seasonally adjusted I don’t know what this comes out to, maybe +75,000 ?
You know it’s starting to be over when the financials, who have upgraded almost everything else, start upgrading each other.
http://www.bloomberg.com/apps/news?pid=20601087&sid=ae7LztNAYf4Y&refer=home
regardless of the “noise” from the talking heads….it’s so over….
Ciao
MS
While I agree that NFP should be taken with a grain of salt, this
At the very least, a more accurate read of the Unemployment Rate is 5.4% — not the 4.6% reported (last July’s unemployment rate was 5%).
is not quite right.
Not being in the labor force is not the same thing as being unemployed for two reasons.
1) An employer could potentially snap up and unemployed worker tomorrow. She is looking for a job and is ready to start work. Someone who is NILF would have to be encouraged to take a job, either by an employer specifically requesting her or because rising wages encourage her to jump back in.
2) Someone who doesn’t have a job and is not looking for one or is not in a position to take one must have another source of income. You do not give up work and decide to become homeless just because the application lines are long.
Now a wife in a two parent family might decide that at these wages, she is better off staying at home than paying for daycare.
A teenager might decide to go to wrestling camp rather than sort through a dozen applications for a mall job.
A retiree might decide to spend time volunteering because there are no open spots for guides at the museum. All of these people are going NILF.
But, that is not the same as the primary breadwinner losing his job and scrambling to find something else so that he can make the mortgage.
“When people accept futility and the absurd as normal, the culture is decadent.”
-Jacques Barzun
Karl:
Well when the wife stays home and the retirees decides to really not work anymore, important spending decisions usually need to be made. How about cutting a car? Or not going to the restaurant as often? If this is the case, more people will nedd to cut their hours, the trickel down effect will have an impact.
I doesn’t matter what you want to call these defectors, their actions, in my analysis, are a good indicator of what is to come. As the number of people leaving the workforce grows, spending should drop… and that should mean more unemployment or more defectors. Not good.
Why even speculate as to the reasons. According to the BLS anyone who is still unemployed after an extension just ceases to exist. That’s more a product of someone at the BLS trying to improve the #’s more than anything else. The reasons given basically make it appear better but the bottom line is that you do not exist after that first extension.
Extrapolation of the broken Fed model is what it is akin to.
Ciao
MS
Barry,
Give the proles in the Ministry of Plenty a break..They are just doing their jobs.
According to the BLS anyone who is still unemployed after an extension just ceases to exist
Except this is not true. The
1)Non-Farm Payrolls
2) Initial and continual fillings for Unemployment Insurance
and
3) Unemployment rate
All come from different sources.
NFP is a survey of business augmented by statistical analysis
Fillings for Benefits comes from state reports’
Unemployment rate comes from a telephone survey.
The unemployment rate is calculated by asking
1) Do you have a job
if no
2) Have you sought employment in the last two weeks
if yes
3) Are you available for work.
Add up everyone who answered yes to (1) plus everyone who answered yes to (2) and (3) and that is the Labor Force.
Add everyone who answered yes to (2) and (3) and divide by Labor Force. That is, the unemployment rate.
you are assuming that people will ALWAYS tell the truth and that that truth is somehow relevant to a backward looking indicator.
Answering in the right way will allow you to be counted…..I think they realize this all too well thus the very non-scientific way it is collected and presented. Answering no to question # 2 and 3 cuts off your benefits (if they are still available) so giving the right answer keeps the pump primed.
Changing it to a system that counts it regardless of your answer is what we need. The smart ones will always answer yes no matter what the real situation is.
Ciao
MS
There is a level of income required to be employed. Once that level is dropped below – transportation, clothing and the State of the Home can drop below ability to play the American job sector. This is the level inner cities and ghettos begin to flouish.
Our social welfare system can also allow this condition to flourish … but remember without that welfare system, crime will rise and the overall look and feel of third world conditions will become visable right here in America.
Excellent write up but I strongly suspect even 5.4% is grossly understated once you examine the specific questions in the household survey. You should extract some of the obvious questions that are intended to give a positive employment response such as whether you’re incarcerated or working more than 15 hours a week and not getting paid, should you still be considered employed? I’m serious with this suggestion. Just pick out the top 5-10 questions that warrant the most scrutiny and assess whether they accurately reflect whether the individual is truly employed or not. This is central to the survey’s accuracy in addition to the participation rate. This would be a most interesting write up and will probably garner alot of feedback.
michael schumacher: Homelessness is not the only, or immediate, alternative to employment. Some people have (gasp!) savings, or can rack up a credit card balance, or get family assistance, for a while.
What is also quite damaging, and where a good number of people end up, is underemployment (e.g. former technicians who were jumping from job to job until everything was offshored now working as limo drivers or night guards) or perpetual “self (un)employment” with a string of no-benefit gigs taken advantage of by companies that are able to “flexibilize” their business process converting from an all-employee to a half(?)-contractor workforce, resting assured that enough of the dumped contractors will be available again as many have no other place to go, and no realistic alternative career outlook.
Most can get by on 1/2 or 2/3 the income level, at a reduced standard of living and much reduced safety cushion. Just cutting out everything but the survival essentials should go some way.
I believe there is a serious creditability problem with this administration in general. After “WMD”, mismanagement of IRAG war, Katrina, “ownership society built on subprime morgage”, Walter Reed scandal, and passport fiasco, it is obvious this administration is incompetent by an epic proportion. To leave some sort of legacy, no doubt this president will try to give the the apperance that economy is strong until he leaves office. It is no coincident that white house economic team appeared on CNBC recently. Professor Ben probably got the call too. So expect everything be “fine”, even if not in reality.
homelessness???
now you’ve got me puzzled or you’ve assumed that was my intent.
Ciao
MS
Whatever happened to all the mortgage brokers and real estate agents that surged into the market over the last few years that are currently not selling/buying much or anything?
I think that they would be counted as employed, no?
…Patience
MS: This is what I’m referring to:
“Someone who doesn’t have a job and is not looking for one or is not in a position to take one must have another source of income. You do not give up work and decide to become homeless just because the application lines are long.”
Perhaps one can quibble about what precisely “source of income” means.
lauteus: If they are “their own boss”, I presume they are “self-employed between contracts”. If they are employed in an RE office with a paycheck and not yet fired, so much the better.
We count half the unemployed people and then brag about how our unemployment rate is half of Europe.
try counting apples to apples and our rate is right up there with Europe.
What a load,
There are lots of reasons people can could be leaving the work force. One of the big one is the baby boomers retiring. Just because people are leaving the labor force doesn’t mean they are unemployed in a statistical sense. What you have to look at is the number of discouraged workers, the people who aren’t in the labor force but would like a job. That number is not rising.
‘me’,
“We count half the unemployed people and then brag about how our unemployment rate is half of Europe.”
Yep.
Using the OECD standards, our unemployment is no different than what it is in Europe. Of course, most European countries have larger Middle-classes than we do, don’t have a large permanent underclass as we do, and don’t have anywhere near the levels of Poverty that we do. Not to mention their universal health insurance.
.
GTTofAK,
“What you have to look at is the number of discouraged workers, the people who aren’t in the labor force but would like a job.”
Check the “Augmented Unemployment Rate”.
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To my thinking the point is not about methodolgy but about comparative analysis. Whether we want to drop some from the numbers today is not relevant to what was occuring in 1997. For comparative basis, the methodologies must be consistent.
It also really makes no sense to try to estimate this change on a monthly basis, as it is a lagging indicator anyway, and the BED report is more reliable data.
The other thing that makes me ponder is why no one talks about the quality of jobs either lost or gained. If the jobs creation is so good, and the quality of the job high, then why has median income fallen over the last 6 years? Why has the number living in poverty risen. And why has the top 1% so dramtically outpaced the bottom 99% in income growth?
At least someone out there is wondering what I am wondering and noticing what I am noticing;
Michael Shedlock:
“Report Highlights
Nonfarm Employment +92,000
Goods Producing -12,000
Construction -12,000
Manufacturing -2,000
Service Providing +104,000
Construction and manufacturing are a subset of goods producing so don’t add the above numbers together. The trend however is clear: We keep losing higher paying jobs for lower paying service jobs.”
But wages have risen in India, China, Mexico…welcome to globalization.
The next census will be very interesting. I wonder if, as economic prospects improve in the rest of the world and get worse here, whether or not recent immigrants are going home? This notion may relate to all of those construction workers who have not been laid off.
As evidence I offer this anecdote: the house built to my north last year used hispanic crews for everthing except the electrical and mechanical, the house going up to my south this year has so far only had anglo crews. It is in the framing stage, same builder.
I am sorry to point this out, but you are misreading the data.
The Non-seasonally adjusted LFP rate in 7/06 was 66.9, but the comparable rate for 7/07 was 66.8, a drop of .1%.
The seasonally adjusted rate dropped from 66.2 to 66.1.
You are comparing the non-seasonally adjusted rate to the seasonally adjusted rate, which produces a non-sensical result and a meaningless conclusions.
Question: all those people who work at jobs with no salary, no benefits, and often no workplace — e.g., selling AFLAC insurance or Mary Kay cosmetics — are they employed, or not? If they’re considered employed, what if they don’t have any sales and therefore no income? I imagine this group now includes an increasing number of real estate salespeople.
Some of this seems subjective….
About a year ago, I read of a website that was tracking unemployment using the same criteria as was used during the Carter Administration, and coming up with 9.5% unemployed. Don’t recall the site tho.