Scratching Beneath the Surface of Unemployment

By Heide B. Malhotra, Epoch Times
March 25, 2013 2:49 am Last Updated: April 3, 2013 7:47 pm

The U.S. Bureau of Labor Statistics (BLS) released February employment statistics on March 8, reporting that nonfarm employment edged up by 236,000 jobs, and the seasonally adjusted unemployment rate decreased from 7.9 percent in January to 7.7 percent.

This so-called positive unemployment report discusses only the job losses of those who receive unemployment benefits and doesn’t address all those who are unemployed and have stopped looking for a job. It also remains silent about whether the firms hired people who were unemployed or people who were still employed, but wanted to move on to a new job.

“If you start counting all the people who 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,” according to a March 9 analysis on the Free Republic website.

 Looking further, one does come across more realistic unemployment numbers, which are published on the BLS website and include those who have given up looking for work or work part time. This number also has decreased, from 14.4 percent in January to 14.3 percent in February.

The BLS table is called Alternative Measures of Labor Underutilization and has six categories from U-1 to U-6, with U-6 having the highest percentage and U-3 being the one officially reported.

“Long-Term unemployment (27 weeks and over) rose to 4,797,000 from last month’s total of 4,708,000; a net rise of 89,000,” the Free Republic analysis states.

On the other hand, the Gallup Economy website gives numbers less rosy than the BLS numbers, reporting an increase in unadjusted unemployment numbers, which rose from 7.8 percent in January to 8 percent in February.

The ADP National Employment report, produced by the ADP Research Institute, states that in February 198,000 nonfarm jobs were filled, which is 38,000 jobs less than the BLS reported.

A March 10 article on the Seeking Alpha website suggests that the positive news concerning unemployment and employment spurred investors on, and the major indices moved up all day long. On March 8, the Russell 2000 Index gained 0.85 percent, and the Dow Jones Industrial Average gained 0.47 percent, according to the Big Charts website.

“This was clearly a positive development on the employment front,” the article on the Seeking Alpha website states.


Digging Deeper

“Digging under the surface, much of the drop in the unemployment rate over the past two years is nothing but a statistical mirage,” the Free Republic analysis suggests.

The author of the Seeking Alpha article told his readers to think again. “For those willing to scratch beneath the surface, the data was not as strong as portrayed by the headline numbers.”

First, the 236,000 jobs reported by the BLS in the February statistics includes an estimate of 102,000 jobs (43.2 percent) that were actually business birth/death adjustments. These numbers are available on the BLS website under the Current Employment Statistics (CES) Net Birth/Death Model.

“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 Free Republic analysis explains.

According to the Seeking Alpha article, “The quality of the jobs created continues to deteriorate relative to the quality of the jobs lost.”

For example, the bar and restaurant industry hired 18,000 people, but 14,700 teachers in public schools were laid off. While the U.S. federal government laid off 10,000 people, 20,000 people were hired, mostly in the motion picture and sound recording industry. Another 16,000 short-term jobs were created.

According to the Free Republic analysis, the economy lost 276,000 full-time jobs and then filled 446,000 part-time jobs.


Not Everyone Fooled

“Taken as a whole, this is by far the slowest recovery in the post-war era. … As it turns out, the bulk of the drop in the unemployment rate since October ‘09 has been driven by people dropping out of the labor force,” a March 11 article on the Seeking Alpha website suggests.

The article continues to say that once people have quit looking for employment, they drop out of the unemployment numbers and are not counted as a member of the U.S. labor force. The aforementioned affects the unemployment rate positively and distorts the employment statistics.

The inconsistency is best shown by the Employment-Population ratio, or employment rate. Before 2009, the employment rate and the population lines as depicted on a graph are very close together. Since 2009, the distance between the two graphs has grown.

“Unemployment has declined substantially, while Employment has hardly improved at all. It fell from a high of over 63% of the population working in ‘06–‘07 to 58.5% working in October 2010,” the Seeking Alpha article suggests.

Since October 2010, the employment ratio has stayed between 58.2 percent and 58.7 percent, while unemployment numbers have shown improvement.

According to the BLS, the lowest employment to population ratio was 58.2 percent in November 2010 and June and July of 2011. The ratio moved up to 58.7 percent in September through November of 2012, but then moved down to 58.6 percent for the months of December 2012 through February. The ratio was the highest at 63.4 percent in December 2006.

“While it’s certainly positive that the economy is continuing to add jobs, the fact is since the end of the recession, those jobs have only served to keep pace with population growth—the real employment picture has not improved,” the Seeking Alpha article states.


Manipulating Numbers

“For no apparent reason, the Department of Labor increased the divisor they used last year from 144 to 166 to seasonally adjust the number. You divide 436k by 166 to arrive at 330k. This is what led to the perceived decline [in unemployment numbers], ” according to a Jan. 24 note on the Fuller Asset Management website.

According to Fuller, the BLS reported that people applying for unemployment benefits declined to the lowest point since five years ago, giving the impression that layoffs are leveling off. The information coming out of the BLS was deceptive, given that it changed the formula by which it calculates its seasonally adjusted numbers.

Fuller promised its readers, “We do our best to read beyond the headline, especially when the market refuses to do so.” 


Different Perspective

“How does a country export unemployment one might ask? By devaluing a currency against other trading partners to make one’s goods and services more affordable to the global marketplace,” a Jan. 22 article on the Season Investments website explains.

According to media reports, Japan has aggressively devalued its currency since October 2012. By Jan. 14, the Japanese Yen was depreciated by around 15 percent against the U.S. dollar and about 20 percent against the Euro.  

Any country that devalues its currency faces a currency war, with trading partners responding in kind.

“Countries that are not devaluing become less competitive in the global market, which reduces demand for their goods and services leading to cost cutting and higher levels of unemployment,” the Season Investments article states.