Published May 02, 2012
There is lots of talk about the "fiscal cliff" the U.S. faces at year end, as stimulus and tax cuts go away.
So the last thing the government needs now is market distrust in its job numbers. But, as analysts dig into the government job numbers, questions are increasingly being raised about the reliability of the data, from questionable revisions in the weekly jobless numbers to the odd changes in unemployment rates.
For 59 out of the last 60 weeks, the weekly jobless numbers have been revised, after the fact, always in the same direction: higher. That's unheard of.
Those revisions higher make the present week’s unemployment number look better in comparison, more so since the markets often treat the prior week’s revision as an afterthought.
And there is statistical manipulation in the unemployment rate, too. The government’s reported unemployment number doesn’t include people who stopped looking for work, but who want jobs.
The Bureau of Labor Statistics says the unemployment rate is dropping, and fell from 10% in October 2009 to 8.2% now. That’s got the White House and media pundits saying an economic recovery has taken place, and that the President’s stimulus bill, which cost more than $750 billion to date, has driven unemployment down towards 8% as promised.
However, the unemployment rate is the number of people out of work but who are actively looking. The government doesn’t count in that rate the now 6.3 million who have given up and stopped looking for work, but want jobs. That number has grown from 5.7 million in January 2009.
So, this "improvement" in the unemployment rate is artificial -- it was due to workers giving up and dropping out of the labor force.
The statistic to look at simply counts the people who are either working or not working. It sets aside the idiosyncratic manipulation whether they’re actively looking for work or not.
If the adult labor force participation rate stayed the same today as it was when the Great Recession ended in June 2009, at 67.5%, the unemployment rate would be 10.9%.
“Some 80% of the reduction” in the unemployment rate from 10% hit in October 2009 to today’s 8.2% “has been from adults quitting the labor force,” says economist Peter Morici.
Morici adds the unemployment rate “rises to 14.5% if you factor back in those who’ve stopped looking for work but would re-enter if there were jobs, as well as part-time workers who would prefer full-time positions.”
Yes, the number of people who have given up looking for work include retiring baby boomers. Still, there is no decent government data showing the number of actual, retiring baby boomers, only estimates. And there are no solid data showing the number of boomers retiring who still want to work.
Overall, government estimates show we have less people wanting to look for work as the population ages, and that’s bad for Social Security, which depends on workers funding it. The “labor force participation rate is declining as baby boomers retire, and what is striking is that decline even includes the number of students and immigrants looking for jobs,” says James Farrell, FOX News analyst.
So ask yourself this: As more people drop out looking for a job, is it right that the government counts it so the unemployment rate looks lower than it really is?
What’s important is the broader trend. Since President Obama took office, America has lost a net 740,000 jobs. But during the first 30 months of President Ronald Reagan’s economic recovery, which started in December 1982, total U.S. employment increased by 8.9 million jobs.
All of this was borne out in the disappointing April ADP employment report today on new private sector jobs, which arrives two days before the Dept. of Labor’s payrolls report for last month.
The ADP number came in showing 119,000 jobs were created in the private sector in April, while analysts had expected it would show that U.S. employers added 177,000 workers (still lower than the 209,000 increase recorded in March.)
It's important to note that the ADP jobs report has tracked the Labor Department’s numbers closely for the last 10 years, according to Charles Brady, senior editor at FOX Business.
“While there is often a wide variance between the two readings, the directional correlation is very strong -- they move in the same direction,” Brady says.
The engine of U.S. job growth, small businesses (those with 1-49 employees), reported a weak 58,000 jobs created, the third straight monthly decline and the lowest since August. Small businesses that produce goods lost jobs, too. Large businesses with more than 500 employees added just 4,000 jobs.
ADP says weather may have played a factor. Better hiring in the mild winter months could be leading to a “payback” in the spring, as businesses have already done the hiring they need for now. Still, all of this means it is unlikely there will be a decline in the unemployment rate Friday, unless the labor force shrinks again, which would not be good, either.
This Friday, forecasters expect the Labor Department to report the economy added 165,000 jobs in April -- better than the 120,000 in March, but still under the 212,000 rate for the first quarter, when the U.S. economy grew at just a 2.2% annualized rate.
The U.S. economy is creating jobs, but it is struggling, adding jobs at a rate of just 131,000 a month in 2011, which is not enough to reduce the unemployment rate.
Morici says the U.S. economy “must add 13 million jobs over the next three years -- 362,000 each month -- to bring unemployment down to 6%. GDP would have to increase at a 4% to 5% pace.”
So there you have it.
Since when does a nation’s labor force shrink during a recovery? It should not shrink, it should grow in a recovery. The labor force participation rate is at the rate it was in 1979 and 1982, even around the same rate it was back in 1969, while the worker population has grown dramatically since.
The rate now is 63.8%, trending at the 30-year low it just hit this past January, at 63.7%. Today there are 154.7 million people over age 16 who either have jobs or want jobs, but out of a much bigger total U.S. population of 16 or older, 242.6 million.
That’s around the same level in July 1982, when the labor force participation rate was 65.3%. There were 110.3 million people working or who wanted to work out of a smaller population of 172.2 million people aged 16 or older.
The labor force participation rate has stayed pretty much the same as it was in 1969, at 60.1%, and 63.8% in February 1979, when the total U.S. population of 16 or older was smaller. The same holds true for more than a decade ago, in April, 2000, when the employment-to-population ratio was 64.7%. That’s when the overall population was lower. at 282 million, versus the 310 million today.