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Apr 07 2013

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March Unemployment – What You Haven’t Heard

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It is Worse Than You Know...

It is Worse Than You Know…

Narratives drive new cycles, especially when it comes to the monthly unemployment statistics.

So what is our March narrative?

Well, first the good news.  Unemployment is down.

That’s right.  According to the Bureau of Labor Statistics (BLS), unemployment ticked down 1/10th of a point to 7.6 percent – the lowest monthly rate since the psychologically significant  month of December 2008 – continuing a steady downward trend that began last year. Even better, BLS revised upward the number of jobs created in January and February by a combined 61,000 (read: President Obama’s economic policies are working).

True, the actual number of jobs created in March was disappointing. Economists were estimating that new job creation for March would come in somewhere near 190,000.  The actual number was a less than impressive +88,000.

Sadly,  this is just more evidence that Republicans in Congress are consciously trying to harm the US economy for partisan motives.  By refusing to agree to President Obama’s “balanced approach” of tax increases on the wealthy and “sensible” spending reform to protect Americans most at risk, the GOP has unleashed massive, across-the-board spending cuts that have decimated government services and, sadly, impacted private sector hiring.

Great narrative, yes?

But of course it bears almost no reflection of the truth.

First let’s dispose of the most egregious canard – that the low job creation number for March was caused by the sequester.  In fact, it had nothing to do with the sequester. 

According to the Washington Post, professional services, a category that includes government contractors, actually added 51,000 jobs in March.  In fact, the federal government shed only 2,000 jobs, not counting the US Post Office, whose losses were not related to the sequester. There may be sequester related job losses in the future, but it cannot be blamed for March’s lackluster performance.

But where to look for causation?

One of the key drivers in BLS’s  low job creation figure was the national loss of 24,000 jobs in the retail sector. This is more easily traced to the quiet January increase in Social Security taxes, which reduced take-home pay for hard-pressed, middle class Americans, who in turn, spend less at the store. The tax increase, not the sequester, is the root cause for this month’s anemic performance.

Now, lets take a step back and look at the broader employment picture painted by BLS. It does beg questions.

Create a paltry 88,000 jobs and unemployment goes down?   A rule of thumb is that the economy needs to produce over 200,000 jobs a month just to keep up with population. How is possible for the unemployment rate to tick down with such an underwhelming job creation performance?

Here, the magic of BLS segmentation allows for the creation of a statistical parallel universe, yielding a terrific top-line number for mass media consumption, but with a deeply troubling, if very simple methodological foundation.

BLS only counts those who are working or actively looking for work, adjusted monthly.

To wit: in March, the total civilian non-institutional population – the pool of potential workers – was 245 million. Of that, the actual civilian labor force was 155 million; creating a Labor Force Participation Rate (LFPR) of 63.3 percent (the lowest level since 1979, btw).

BLS makes statistical magic by using the civilian labor force and the LFPR as a constant to represent the entire labor pool for a given month. So for March, 155 million in the civilian labor force and a 63.3 percent LFPR equals 100 percent of the labor universe.

Isn’t that neat.

From that statistical constant, the results flow quickly.  155 million in the labor force, 143 million actually employed, leaving 11.7 million unemployed, or 7.6 percent.

But any lay person can see the flaws in the approach.  What about everyone else?

By using the adjusted LFPR as a constant each month, BLS effectively comes up with a new universe of labor every 30-31 days that disregards the number of people who drop out of the labor force, or, for that matter, those new people who are eligible to join the labor pool based on population growth, but aren’t working.

And this is particularly significant for the most recent report.

In February, there were 155.5 million Americans in the civilian labor force, yielding a LFPR of 63.5 percent. In March, the number dropped to 155 million, with 496,000 people dropping out. But since the new labor universe in March was 155 million, those who dropped out don’t count in the unemployment rate. Indeed, if you add together potential new entrants to the labor force from February to March (+167,000) with those who dropped out in the same period (-496,000), you end up with a cohort of 663,000 Americans who are not counted in the labor pool in a one month window.

That is simply an enormous shift in human capital that goes unaccounted for.

By way of example, if you were to include this cohort of Americans in the “official” BLS unemployment rate, March would have seen a significant spike in unemployment up to 8 percent, instead of a fractional decline. But even more depressing,  the 663,000 excluded from the monthly employment change are now join an enormous cohort listed by BLS as simply “not in labor force.” That number hit 90 million in March – also a record.

So, instead of a steadily improving labor market, as we are led to believe by official reporting of top-line numbers, we area actually in the midst of an epic employment crisis with huge implications.

As the Washington Post points out, “A smaller workforce reduces what economists call potential [GDP], or how much the economy can be expected to expand over the long-term. Michelle Meyer, a senior economist for Bank of America stated that her potential growth projections have fallen from 3.25 percent to 2.25 percent, because of changes in the participation levels.”

This equates to vast, lost wealth – as much as $2 trillion over a decade.

The Post goes on to note that the easiest explanation for vanishing prime-aged workers in the weak job market; the economy just isn’t creating enough new jobs to keep job seekers engaged, so many are getting frustrated and abandoning their search for work. However, with such a large cohort in limbo, economists fear that the longer people are out of work, the more their skills will erode, their social networks will atrophy, and gaps in their resumes will scare off potential employers. These lost workers would become essentially unemployable, becoming a permanent social challenge for the country, in both the unemployment rolls and lost GDP.

So economic policy is not abstract. Setting the table so that the private sector will hire and create is vital to our national well-being. Taxes, regulations have a price and a long-term social cost in lost wealth creation and economic mobility. Is anyone in the West Wing listening?

A final word on unemployment and politics.

President Obama was powered to re-election by the strong support of minorities and younger Americans.  What do we find if we correlate election data from 2012 by race and age with unemployment numbers?

By Race

 

Cohort Race Unemployment Rate 4-13 Not in Labor Force % Voting For Obama in ‘12
National   7.6% 90 Million 51%
White 6.7% 68 Million 39%
African- American 13.3% 11 Million 93%
Latino 9.2% 11 Million 71%
Asian 5.0% N/A 75%

 

By Age

 

Cohort Age Unemployment Rate 3-13 % Voting For Obama in ‘12
National   7.6% 51%
  18-24   60%
  18-19 22%
  20-24 18%

So, you who were at the cusp of “Hope and Change” redux.

How’s that pick working out for you?

It would be funny if it wasn’t so tragic.

 

 

 

 

3 comments

  1. grossyi

    The problem is larger than just the unemployment numbers. Does anyone believe that inflation is the reported 2% while corn, fuel, and cotton have risen 20%? The problem is that we have been lied to so often by our leadership in conjunction with a complicit national media that the citizenry is not only unaware of reality but largely uninterested. All the major media sources have proven themselves partisan liars, leaving many to seek news from alternative sources. Obama, like Bush, lie on a regular basis to further his agenda. When do we as a nation stop listening? Have we already? What does that portend for our nation?

  2. Steven Baum

    An expired tax break does not equal a tax increase. Lets be fair here, as my friend always says “truth has no agenda.”

    1. duffysoa

      Semantics, and not very good at that.

      What happened to your take home pay in January? You were paid less. Why? Because your taxes went up. It’s the same thing as when an illegal immigrant is called an “undocumented worker” – its designed to soften reality.

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