Mike Shedlock
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Quick Notes About the Unemployment Rate

  • US Unemployment Rate fell .01 to 8.1%
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  • In the last year, the civilian population rose by 3,638,000. Yet the labor force only rose by 945,000. Those not in the labor force rose by 2,693,000.
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  • The Civilian Labor Force fell by 342,000.
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  • Those "Not in Labor Force" increased by 522,000. If you are not in the labor force, you are not counted as unemployed.
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  • Those "Not in Labor Force" is at a new record high of 87,419,000.
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  • By the Household Survey, the number of people employed fell by 169,000.
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  • By the Household Survey, over the course of the last year, the number of people employed rose by 2,237,000.
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  • Participation Rate fell .2 to 63.6%
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  • There are 7,853,000 workers who are working part-time but want full-time work
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  • Were it not for people dropping out of the labor force, the unemployment rate would be well over 11%.

This month was another disaster. Actual employment fell by 169,000 and the only reason the unemployment rate dropped is the civilian labor force fell by 342,000. These numbers are well past the point of believability and will be revised at some point in my opinion.

Over the past several years people have dropped out of the labor force at an astounding, almost unbelievable rate, holding the unemployment rate artificially low. Some of this was due to major revisions last month on account of the 2010 census finally factored in. However, most of it is simply economic weakness.

Jobs Report at a Glance

Here is an overview of today's release.

  • US Payrolls +115,000 - Establishment Survey
  • US Unemployment Rate dropped .01 to 8.1% - Household Survey
  • Average workweek for all employees on private nonfarm payrolls was unchanged at 34.5 hours
  • The average workweek for production and nonsupervisory employees on private nonfarm payrolls was unchanged at 33.8 hours.
  • Average hourly earnings for all employees in the private sector rose by 1 cent.

Recall that the unemployment rate varies in accordance with the Household Survey not the reported headline jobs number, and not in accordance with the weekly claims data.

April 2012 Jobs Report

Please consider the Bureau of Labor Statistics (BLS) April 2012 Employment Report.

Nonfarm payroll employment rose by 115,000 in April, and the unemployment rate was little changed at 8.1 percent, the U.S. Bureau of Labor Statistics reported today. Employment increased in professional and business services, retail trade, and health care, but declined in transportation and warehousing.

Unemployment Rate - Seasonally Adjusted



Nonfarm Employment - Payroll Survey - Annual Look - Seasonally Adjusted



Employment is about where it was just prior to the 2001 recession.

Nonfarm Employment - Payroll Survey - Monthly Look - Seasonally Adjusted



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Between January 2008 and February 2010, the U.S. economy lost 8.8 million jobs.

Since a recent employment low in February 2010, nonfarm payrolls have expanded by 3.7 million jobs. Of the 8.8 million jobs lost between January 2008 and February 2010, 42 percent have been recovered.

Statistically, 125,000+- jobs a month is enough to keep the unemployment rate flat. For a discussion, please see Question on Jobs: How Many Does It Take to Keep Up With Demographics?

The average employment gain over the last 26 months has been 142,000, barely enough (statistically speaking) to make a dent in the unemployment rate.

Yet, the civilian unemployment rate has fell from 9.8% to 8.1%.

Current Report Jobs



Average Weekly Hours



Index of Aggregate Weekly Hours



Average Hourly Earnings vs. CPI



"Success" of QE2 and Operation Twist

  • Over the past 12 months, average hourly earnings have increased by 1.8 percent. In March, the Consumer Price Index for All Urban Consumers (CPI-U) had an over-the-year increase of 2.6 percent; growth in prices has recently been outpacing growth in earnings.
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  • Not only are wages rising slower than the CPI, there is also a concern as to how those wage gains are distributed.

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 out 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 2011



Birth Death Model Adjustments For 2012



Birth-Death Note

Once again: Do NOT subtract the Birth-Death number from the reported headline number. That approach is statistically invalid.

Household Survey Data



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In the last year, the civilian population rose by 3,638,000. Yet the labor force only rose by 945,000. Those not in the labor force rose by 2,693,000.

That is an amazing "achievement" to say the least, and as noted above most of this is due to economic weakness not census changes.

Decline in Labor Force Factors

  1. Discouraged workers stop looking for jobs
  2. People retire because they cannot find jobs
  3. People go back to school hoping it will improve their chances of getting a job
  4. People stay in school longer because they cannot find a job

Were it not for people dropping out of the labor force, the unemployment rate would be well over 11%.

Part Time Status



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There are 7,853,000 workers who are working part-time but want full-time work.

Table A-15



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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 8.1%. However, if you start counting all the people that 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 14.5%. Both numbers would be way higher still, were it not for millions dropping out of the labor force over the past few years.

Grossly Distorted Statistics

Given the complete distortions of reality with respect to not counting people who allegedly dropped out of the work force, it is easy to misrepresent the headline numbers.

Digging under the surface, the drop in the unemployment rate over the past two years is nothing but a statistical mirage. Things are much worse than the reported numbers indicate.

Note the drop in U-6 unemployment this month as the Civilian Labor Force fell by 342,000. This is beyond statistical noise, to the point of pure statistical bullsheet.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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Mike Shedlock

Mike Shedlock is a registered investment advisor representative for Sitka Pacific Capital Management.