Is October's Unemployment Rate Really 12.7%?

 

The 'Helicopter Economics Investing Guide' is meant to help educate people on how to make profitable investing choices in the current economic environment. We have coined this term to describe the current monetary and fiscal policies of the U.S. government, which involve unprecedented money printing. This is the official blog of the New York Investing meetup.

The BLS released its non-farm payroll figures for October today and they stated that 80,000 jobs were created and that the U.S. unemployment rate was 9.0%. There are reasons to believe that this number is actually as high as 12.7%.

Except for February and March of this year, the unemployment rate (the U-3 number) has been 9.0% or higher since May 2009. It hasn't risen well into the double digits because large numbers of workers have supposedly left the labor force and these people are not counted as unemployed. If we go back four years to just before the Great Recession began, we find that in October 2007 there were 145,937,000 employed Americans over 16 and 79,506,000 were not in the labor force. Now in October 2011, there are 140,302,000 employed people and 86,071,000 not in the labor force. You can see the figures here: http://www.bls.gov/webapps/legacy/cpsatab1.htm.

So in the last four years the American economy has had a net loss of 5,635,000 jobs. This huge loss hasn't shown up in an escalating unemployment rate because at the same time a net 6,565,000 people have supposedly left the labor force. The BLS conveniently does not count them as unemployed even though they do not have jobs. If we included them in the unemployment calculations, the unemployment rate for October would be 12.7%. This should not be confused with the underemployment rate (known as U-6) which includes people working part-time, but who want full-time jobs. This number was 16.2% last month.

A case could be made that the U.S. labor force should be shrinking because more people are retiring than there are graduating students. There are approximately 3.5 million people reaching age 65 (not all of whom retire and many of whom didn't work) and only about 3.2 million students graduating high school currently (eventually most of them enter the labor force). While retirees have the advantage, there are also approximately a net 1.3 million immigrants coming into the U.S. every year and a disproportionate number of them are younger adults of employment age. The labor force should at least be steady, if not growing slowly. Instead, BLS figures indicate a rapid shrinkage is taking place.

It would be highly unusual for the labor force to decline at all during a recovery. When the economy is strong, people on the margins go out looking for jobs. For the labor force to drop by millions indicates an extremely weak economy.  So, if the U.S. labor force has six and a half million fewer workers than it did four years ago, no significant recovery has taken place. If the labor force hasn't dropped by as much as the BLS claims, then the unemployment rate is in the double digits and this also indicates no significant recovery has taken place. While it seems more likely than the true unemployment rate is closer to 13% than 9%, either figure indicates that the U.S. economy is still recessionary.

Disclosure: None

Daryl Montgomery
Author: "Inflation Investing - A Guide for the 2010s"
Organizer, New York Investing meetup
http://investing.meetup.com/21

This posting is editorial opinion. There is no intention to endorse the purchase or sale of any security.

June Employment Report: Where are the Graduating Students?

The 'Helicopter Economics Investing Guide' is meant to help educate people on how to make profitable investing choices in the current economic environment. We have coined this term to describe the current monetary and fiscal policies of the U.S. government, which involve unprecedented money printing. This is the official blog of the New York Investing meetup.


Every May and June millions of students graduate from high school and college and enter the U.S. labor force swelling the numbers. Yet in the just released employment report for June, the BLS claimed the labor force decreased by 652,000 last month. This followed a decrease of 286,000 in May. This of course is not possible unless the U.S. economy is in the midst of a depression.

So where did the all the recent graduates go? One place most of them didn't go was to a place of employment. A survey by the National Association of Colleges and Employers found only 40% of new college graduates had a job offer before leaving school in 2010. This compares to two-thirds in pre-recession 2007.  High school graduates not going to college probably didn't do much better. The BLS lists the unemployment rate for those between 16 and 19 as 25.7%.

According to the Statistical Abstract of the United States, 3.3 million students graduated high school and another 3.3 million received college degrees in 2010. While not all of these people would have entered the labor force, it can be assumed that at least a few million did in the last two months. Nevertheless, the BLS claims that there were almost a million less people in the U.S. labor force in June than there were in April. This huge drop in participants caused the reported unemployment rate to drop to 9.5% in June since people who leave the labor force aren't counted as unemployed. The Bureau explained these disappearing participants as people who gave up looking for jobs because none were available for them - not exactly an indication of a recovering job market.

BLS figures further show that there were 301,000 less employed Americans in June than there were in May (see http://www.bls.gov/news.release/empsit.a.htm). The headline number reported a loss of only 125,000 jobs however. The BLS explained this away as a loss of 225,000 census jobs and claimed that the private sector added 83,000 jobs. If you use the 301,000 figure though, it looks like there was a loss of approximately 83,000 private sector jobs.

The insane contradictions in the BLS figures can partially be explained by 'seasonal adjustments'. This is one of the statistical tricks the bureau utilizes to try to make a sow's ear look like a silk purse. Seasonal adjustments make it possible for millions of graduating students to enter the labor force and the BLS to report that the labor force shrank while this was happening.

The employment numbers should be seen for what they are - absurd results created by gross manipulation. Many people however don't wish to believe this takes place despite all the evidence. Those are the people who really need to worry about the current state of the U.S. economy. If the labor force can decline by a million when millions or graduating students are entering it, this means it really lost maybe four or five million workers in a two-month period. That indicates that things are worse in the U.S. now than they were during the Great Depression in the 1930s.

Disclosure: None

Daryl Montgomery
Organizer, New York Investing meetup
http://investing.meetup.com/21

This posting is editorial opinion. Like all other postings for this blog, there is no intention to endorse the purchase or sale of any security.