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October Employment Report: What Really Happened?

Posted by Larry Doyle on October 5, 2012 10:13 AM |

Was the unemployment report released this morning gamed by the powers that be in Washington? Former General Electric CEO Jack Welch thinks so and had this to say in a tweet released right after the report:

Well, while Welch and many others believe a conspiracy is at work, let’s take a harder look at the numbers.

How is it that the rate could drop by .3% while the actual number of jobs created came in line with expectations at 114k? Prior months revisions of +86k jobs added helps, but the 3-month average of approximately +145k jobs added is barely enough to keep the overall level of unemployment flat. The fact that many of the revisions were in government payrolls, primarily education, raises questions given the pressures we know exist in many municipalities throughout the nation.

Additionally, how is it that the rate could drop by .3% while the more broadly defined U-6 rate of unemployment remained unchanged at the elevated level of 14.7%?

The key to the change in the unemployment rate is the fact that there were a lot of people who reportedly found part-time work. Bloomberg highlights this fact in writing:

Some 582,000 Americans took part- time positions because of slack business conditions or those jobs were the only work they could find.

Part-time positions can influence a report to this magnitude? How convenient. The numbers within the household survey are highly volatile and subject to serious revisions. At this month’s rate of change, we could still have the worst economy since the Great Depression, but a 5% rate of unemployment by mid-2013. We would also be ridiculed as a nation of liars and fakers. (Please see my other commentary this morning).

A positive within the report is that average hourly earnings moved higher by .3%. However, the overall labor force participation rate remained unchanged at the lowest level of the last thirty years. What is the labor force participation rate?

A measure of the active portion of an economy’s labor force. The participation rate refers to the number of people who are either employed or are actively looking for work. The number of people who are no longer actively searching for work would not be included in the participation rate.

Add it all up and my ‘sense on cents’ conclusion is that our nation’s economy continues to suffer from a serious case of ‘walking pneumonia.’ In fact, given the latest GDP reading of 1.3%, I think there is a greater likelihood our economy slips back into recession given ongoing economic drag from Europe, a decline in economic activity from Asia, and the fiscal cliff here in America.

Navigate accordingly.

Larry Doyle

ISN’T IT TIME to subscribe to all my work via e-mail, an RSS feed, on Twitter or Facebook?I have no affiliation or business interest with any entity referenced in this commentary. The opinions expressed are my own. I am a proponent of real transparency within our markets so that investor confidence and investor protection can be achieved.

  • crusader

    Good read LD.

  • Mark

    Any truth to the speculation that half the part-time workers are now on the White House payroll supporting Michelle’s program to get school kids to drink more water and eat carrot sticks?

    • fred

      Mark,

      First I laughed then I realized you may be on to something. I’ve noticed a pickup in news coverage about the change in public school lunch programs to support a healthier diet; surely the implementation of these changes has created jobs, probably starting in Sept (back to school).

      Sadly, so far, the greatest need for employment created by this program, has been in waste removal because the children just don’t want to eat healthier.

  • Andrew

    Can’t we come up with an easy, honest way to count unemployment? Show of hands, or something. Really. Why is this so complicated?

  • Joyce

    Larry,

    Rotted to the very core. I am literally chilled.

  • Rick

    Not seasonally adjusted 1 month change in government wage and salary workers, highest since 1948

    Seasonally adjusted very high but not quite at record

    Two month moving average a chart buster

  • Ron

    Home Depot Founder Bernie Marcus shares his concerns for our nation and how frightened he is by what Pres. Obama’s policies mean for America, especially for our children and future generations. In particular, the lack of job creation and rising home foreclosures are limiting the American dream for millions of families.

    A message from Bernie Marcus.

  • Rick

    Clear choice in a simple sign

  • Nakata

    IMPOSSIBLE THAT 114,000 JOBS MAKES A DIFFERENCE OF 8.2-7.9=.3% by Grant Cardone

    The Labor Department’s numbers are a deception…

    JOBS
    1) Labor dept. had predicted 115,000 added – so why wasn’t the supposed drop promoted? They were predicting an increase…..

    2) DOESN’T ADD UP
    How do you add 114,000/12,000,000 out of work equals a change of .0095
    8.1 -.0095 = 8.0905

    The unemployment rate edged up last month to 8.2 percent from 8.1 percent, with 96,000 jobs added in August.
    WHY IS THIS IMPORTANT AND WHY IT MATTERS TO YOU
    1) Clearly the govt will lie to you (like Nixon & Clinton)
    2) Either way we are in a fragile economy a long way from recovery (16 trillion debt, Europe, sectors that are working are buying businesses)
    3) Business are the ones adding jobs while govt is cutting them
    4) Wages are flat or going backwards
    5) Prices for basic goods at the store are going up
    6) At at job creation rate of 208,000 per month (best year of job creation in the 21st century), it will take until 2020 to close the jobs gap.
    7) A rate of 321,000 jobs per month, which was the average monthly rate for the best year of job creation in the 1990s’, the economy will reach pre-recession employment levels by April 2016—not for another four years
    8) More than 5 million people have been out of work for six months or more

    In records dating to 1948, the number of long-term unemployed had never reached 3 million. Federal Reserve Chairman Ben Bernanke has called long-term unemployment a “national crisis”.

    The U.S. economy, slowed by government cuts, weak manufacturing, a European economic crisis and tepid consumer spending, has been growing at a meager annual pace of 1.5% last year.

    Europe’s financial crisis has pushed six of the 17 countries that use the euro into recession. Growth has also slowed in large developing countries such as China and India. Both trends are cutting into U.S. exports.
    Many U.S. companies are also reluctant to step up hiring or investing because of the year-end “fiscal cliff.” That’s when a package of large tax increases and steep spending cuts are scheduled to take effect. Unless Congress agrees to postpone the cuts, the economy could be pushed back into recession. What does all this mean? In a weak job market, employers have little reason to offer significant raises. Why – little competition – the more people working and fewer looking means increase in wages. The percentage of Americans either working or looking for work fell to a 31-year low of 63.5 percent in August. 192M WORKING SUBTRACT 114,000 FROM THAT .00059375 People are checking out. Loss of Confidence, taxes collected and spending.

    — More than 23 million Americans are either unemployed, stuck in part-time jobs because they can’t find full-time work or want a job but have stopped looking. Need to be GREAT right now. Really do everything you can to make a difference. Companies are looking for and will pay extra for GREATNESS. Come in early, stay late, go the extra mile.

    Management now is the time to push.

  • LD: recommended

    Heartland Institute Economic Experts
    React to October Jobs Report

    The unemployment rate dropped below 8 percent for the first time since the first month of the Obama presidency, falling from 8.1 percent in August to 7.8 percent in September. The U.S. Labor Department said the economy added 114,000 jobs last month, and it revised upward the number of Americans who found work in the previous three months.

    The following statements from economics experts at The Heartland Institute – a free-market think tank – may be used for attribution.

    “The news reports regarding today’s unemployment rate are highly misleading. There are two different sources of job data – payrolls and surveys. The payroll numbers show private payrolls growing at the same 1 percent annual rate as in recent months. This is down from 2 percent increases in private payrolls in 2010 and 2011. Hence, the sluggish job growth continues.

    “The job survey numbers are a different story. They show a gain of over 800,000 jobs in September. These are the numbers that go into the unemployment rate of 7.8 percent. The survey numbers are highly volatile. They show a decline of over 300,000 jobs in the previous two months. Over the past six months the survey job numbers show about the same 1 percent annual increase in jobs as the payroll numbers. Hence, there has been no improvement in the job market. It remains weaker than it was in 2010 and 2011.”

    Robert Genetski
    Policy Advisor, Budget and Tax Policy
    The Heartland Institute

    “Yeah, the unemployment rate is 7.8 percent … in Venezuela. When was it decided that would be the rate this month? In February, at the Obama campaign? This unemployment report reflects not the state of unemployment today, but corruption.

    “So many millions have left the work force over the past several months? Based on what exactly? What Labor Department American Federation of Government Employees career bureaucrats say? That justifies only an investigation into corruption at the Labor Department employment statistics office, with more than just firings at stake, but criminal liability as well.

    “This will not work to Obama’s political advantage, but just the opposite. The corruption of our federal government it represents will only further outrage voters. This is the equivalent of an attempted coup d’etat.”

    Peter Ferrara
    Senior Fellow for Entitlement and Budget Policy
    The Heartland Institute

    “The big disparity between the household and payroll surveys makes me skeptical that this is a beginning of a huge employment surge. The moderate stock market gains since the numbers were announced confirm that investors are only cautiously optimistic about this report. And it does not erase my belief that abysmal public policies have contributed to the slowest recovery in more than 70 years.”

    Richard Vedder
    Professor of Economics, Ohio University
    Policy Advisor, Economics
    The Heartland Institute

    “It’s good that more people had jobs, but it’s a long way from where the country needs to be. For jobs growth to keep up with the growth in the population, the nation needs to add more than 200,000 jobs a month, each and every month. And there are still 3.4 million fewer jobs than there were just four years ago.”

    Steve Stanek
    Research Fellow, Budget and Tax Policy
    The Heartland Institute
    Managing Editor
    Budget & Tax News

    “The employer survey was consistent with previous trends, but the household survey, the one showing 873,000 newly employed, is nearly eight times as high as the employer report. Who is employing these people if not employers? This casts serious doubt on this good news.”

    S.T. Karnick
    Director of Research
    The Heartland Institute

    “The unemployment numbers released by the Labor Department today are highly suspect, and may well be the result of a statistical anomaly given the disparity between the number of new jobs reported and the decrease in the unemployment rate. Even if the unemployment rate is accurate, it is hardly a sign of robust economic recovery; any optimism felt is the result of lowered expectations after nearly four years of unemployment rates over 8 percent.

    “When policies are introduced that eliminate the uncertainty over looming tax increases, and the country’s job creators are confident in the direction the country is heading, we will see true recovery driven by the private sector.”

    Jonathan Steitz
    Policy Advisor, Budgets and Taxes
    The Heartland Institute

    The Heartland Institute is a 28-year-old national nonprofit organization headquartered in Chicago, Illinois. Its mission is to discover, develop, and promote free-market solutions to social and economic problems.

  • NRG

    From David Malpass at Encima Global

    Today’s Labor Department survey of business establishments showed total payrolls up 114,000 in September, in line with consensus. Revisions added 86,000 to July and August, largely due to upward revisions to government employment (6,000 federal gains, 16,000 state gains and 69,000 local gains, mostly education-related.)

    Private sector payrolls were up 104,000 in September, well below the 130,000 consensus, continuing a very weak growth trend.

    The household survey found 873,000 net new jobs in September. This followed losses of 119,000 in August and 195,000 in July. In September, the labor force rose 418,000 to 155.1 million, allowing the official unemployment rate (which counts all forms of part-time employment the same as full-time employment) to fall to 7.8%, the lowest since January 2009.

    Of the 873,000 gain in the household survey, 582,000 identified themselves as “part-time for economic reasons.” The U6 rate, which considers workers employed part-time for economic reasons as underemployed, stayed at 14.7%, unchanged from August. Workers part-time for economic reasons rose to 8.6 million in September, up from 7.7 million in March, more than accounting for the growth in both surveys and helping reconcile the weakness in GDP growth with job gains.

    This helped lower the unemployment rate but not the U6 underemployment rate. The year-to-date monthly average for the household survey is 219,000 jobs versus 159,000 for the establishment survey. However, per the household survey, the number of full-time workers has declined 64,000 since March and is 6.6 million below the November 2007 peak. The shift toward part-time employment is partly due to the high cost of health-care benefits.

    The participation rate rose to 63.6 in September, after hitting a deep low of 63.5% in August, reflecting discouragement in labor conditions and aging demographics. The participation rate for prime aged workers 25 to 54 is at 81.5%. This measure reflects an increasing number of women in the labor force in the 1960s-1980s, a leveling off in the 1990s, and a drop-off in recent years (see graph in the attachment.)

    The unemployment rate in previous cycles roughly tracked the employment to population ratio. But in this cycle, the two have diverged. The employment to population ratio, which normally ranges from 62% to 64%, has been stuck below 59% during this recovery because job growth is barely keeping up with population growth.

    The workweek rose 0.1 hours to 34.5 hours in September. Hourly pay rose 0.3% to $23.58. Payrolls gained 2.5% annualized in Q3, the same as in Q2 when nominal GDP growth was 2.8%, suggesting that the recovery remained very slow in Q3.

    Aggregate weekly hours grew 0.8% in Q3 annualized, slightly above the 0.4% growth in Q2. This suggests that third quarter real GDP grew only a little above the 1.3% second quarter rate.

    Bottom line: The labor environment is showing steady but very slow gains, with unemployment falling gradually in large part due to part-time work. Part-time jobs have accounted for nearly all of the employment gains since March.

    David Malpass
    Encima Global

  • Richard

    Some of the mysterious drop in the unemployment rate in September–which fell from 8.1% to 7.8%–can be explained by 101,000 new government jobs over the past three months.

    Some of it can be explained by slow growth in the private sector–though not nearly as much as the Obama administration is falsely claiming.

    But most of it is accounted for by statistical revisions and a sudden increase of 600,000 part-time jobs. That increase has surprised everyone, but should not have: it is the predicted result of the end of unemployment benefits.

    Conventional wisdom is that slow job growth–such as the below-average 114,000 jobs added in September–should be associated with a rising unemployment rate, as more people come back into the labor force.

    That is why economists predicted an increase of 111,000 to 113,000 jobs, combined with a slight uptick in the unemployment rate from 8.1 to 8.2 percent. On several occasions in the past few years, we have seen low job growth combined with lower unemployment rates, because millions of people have left the labor force instead.

    What happened in September was counterintuitive: the U.S. Bureau of Labor Statistics reported that while job growth was slow, the labor force actually grew substantially–and the unemployment rate fell anyway. That is partly because the government’s household survey reported an additional 873,000 people were employed–a statistical anomaly, mostly accounted for by the astonishing increase in 580,000 part-time jobs (roughly 7.5%).

    Those increases would not be expected in an economy crawling toward recession at a growth rate of 1.3%.

    The only possible explanation lies outside the economy itself: the expiration of federal unemployment benefits.

  • RCF

    I haven’t seen the raw numbers and could be wrong, but what I glimpsed on the TV seemed to show that the revisions went up by a total of 50%…the messy numbers shouldn’t be that variable!

  • fred

    LD,

    One cannot challenge the data collection methodology of the BLS or the statistics involved in the computation, but what one might question is why there is such a large anomoly in the employment numbers that conveniently reduces the unemployment rate below 8% the month before the election.

    Look no further than the massive amounts of expiring long term unemployment benefits or the HHA mortgage assistance program being administered by uncle Timmy over in Treasury.

    You have bills to pay and no more unemployment check so what do you do? FIND A PART TIME JOB or in order to continue to qualify for the HHA mortgage assistance program for up to $15,000 and to $25,000 in disaster areas you must be a) currently unemployed but seeking employment (subject to verification by potential employers) or b) self employed or part time employed with income not to exceed.

    So ask yourself 1) what do you say when BLS comes calling? 2)Has anything really changed other than the democratic unemployment rate soundbite?

  • Peter Scannell

    I don’t have a job.

  • http://warrendale.blogspot.com Frank Nemecek

    U6 wasn’t unchanged. It went from 14.6% to 14.2%.

    http://www.bls.gov/news.release/empsit.t15.htm

    • LD

      Frank,

      On a seasonally adjusted basis, which is how it is WIDELY reported and accepted, the U-6 remained unchanged at 14.7%.

      U-6 Total unemployed, plus all persons marginally attached to the labor force, plus total employed part time for economic reasons, as a percent of the civilian labor force plus all persons marginally attached to the labor force
      Not Seasonally Adjusted
      15.7 14.6 14.2

      Seasonally Adjusted

      16.4 14.8 14.9 15.0 14.7 14.7

      http://www.bls.gov/news.release/empsit.t15.htm






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