Real e Finance means business
The 'Helicopter Economics
Investing Guide' is meant to
help educate people on
how 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.
Investing Guide' is meant to
help educate people on
how 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 truth and nothing but...
U.S. Non-farm
Payrolls -- The
Statistical Illusion
of Jobs
Jan 6, 2012
Payrolls -- The
Statistical Illusion
of Jobs
Jan 6, 2012
The Employment Report for December 2011 was released today with a
glowing press release from the BLS (Bureau of Labor Statistics). The
highlight of the report was the 42,000 courier and messengers jobs created
last month and the claim that the unemployment rate fell to 8.5%
Statistics can easily be manipulated and it is not unknown for political
regimes to do so in order to hold on to power (and 2012 is an election year
in the U.S.). After all, it is much easier to change a number than to fix the
underlying problem the number represents. Fortunately, the BLS publishes a
number of statistical Tables with each monthly report that can be used to
check its calculations.
When the real Great Recession began in December 2007, the civilian
non-institutional population of the United States was 189,993,000. At that
time, the number of people in the U.S. labor force was 125,588,000. As of
December 2011, the BLS states that the employment population ratio for
the U.S. is 58.5% (0.585). The non-institutional population of the U.S. was
reported at 193,682,000 or 3,689,000 higher than it was in December 2007.
The labor force in December 2007 was 125,334,000 and multiplying the
increase in the U.S. population in the intervening four years by the
employment population ratio indicates that the labor force should have
increased by 2,158,000 to 127,492,000. However, the BLS reports the U.S.
labor force last month was 124,114,000. More than three million people
are missing from its figures.
The smaller the labor force is, the better the headline unemployment rate
becomes. The BLS claims these three million plus people left the labor
force and this justifies purging them from the statistics. There is a problem
with their line of reasoning however. Large numbers of people only leave a
labor force during periods of severe economic distress. It does not
happen during economic recovery. It does not indicate an employment
situation that is improving. Yet, the BLS produces numbers showing things
are getting better when this happens. This violates the first rule of statistics
-- the results must reflect reality. The BLS numbers do not.
Dividing the number of employed in December 2011 by the size of the
labor force that should exist based on the population numbers produces
an unemployment rate of 9.6%, not 8.5%. This is the headline number that
should be reported. If the BLS wants to insist however that more than three
million people have indeed left the labor force (and this has continued in
the last year -- the size of the labor force in December 2011 is smaller than
it was in December 2010), it should also make it clear that this indicates
that there has been an ongoing recession and no economic recovery has
taken place. Both can't happen at the same time, except for a brief
period. Either the economic recovery story is a lie or there hasn't been a
shrinking labor force.
While mainstream economists will insist that employment is a lagging
indicator (more than two years is some lag), this has only been the case in
the U.S. years after statistical "improvements" were introduced in the 1980s
and 1990s in how government economic numbers were determined.
Before that, employment recovered with improving GDP as should be the
case. If you think about it, the term jobless recovery makes as much sense
as tall midget or genius moron.
The improvement in the weekly unemployment claims is also being cited
as evidence of an improving jobs picture. It would be more accurate to
say that it is evidence of a jobs picture than can't continue to get worse. As
I have stated since at least mid-2010, the weekly claims number will
regress toward the mean (move to its long-term average) because
eventually there will be few workers who remain to be laid off. After being
elevated for several years, the only way that weekly claims can now
increase is with a big jump in bankruptcies. This will be avoided as long as
the economy holds steady.
What is keeping the U.S. economy from getting worse is the
unprecedented budget deficits that the U.S. is running. If you spend an
extra $1.3 trillion dollars that you don't have as the U.S. did in 2011, this will
certainly stimulate the economy in the short-term since much of this
money winds up in consumer pockets and they spend it. According to the
non-farm payrolls report for December, the U.S. is not exactly getting good
value for this money. Unless of course, you think low-paying courier and
messenger jobs should be the cornerstone of the economy.
Disclosure: None
Daryl Montgomery
Author: "Inflation Investing - A Guide for the 2010s"
Organizer, New York Investing meetup
http://investing.meetup.com/21
glowing press release from the BLS (Bureau of Labor Statistics). The
highlight of the report was the 42,000 courier and messengers jobs created
last month and the claim that the unemployment rate fell to 8.5%
Statistics can easily be manipulated and it is not unknown for political
regimes to do so in order to hold on to power (and 2012 is an election year
in the U.S.). After all, it is much easier to change a number than to fix the
underlying problem the number represents. Fortunately, the BLS publishes a
number of statistical Tables with each monthly report that can be used to
check its calculations.
When the real Great Recession began in December 2007, the civilian
non-institutional population of the United States was 189,993,000. At that
time, the number of people in the U.S. labor force was 125,588,000. As of
December 2011, the BLS states that the employment population ratio for
the U.S. is 58.5% (0.585). The non-institutional population of the U.S. was
reported at 193,682,000 or 3,689,000 higher than it was in December 2007.
The labor force in December 2007 was 125,334,000 and multiplying the
increase in the U.S. population in the intervening four years by the
employment population ratio indicates that the labor force should have
increased by 2,158,000 to 127,492,000. However, the BLS reports the U.S.
labor force last month was 124,114,000. More than three million people
are missing from its figures.
The smaller the labor force is, the better the headline unemployment rate
becomes. The BLS claims these three million plus people left the labor
force and this justifies purging them from the statistics. There is a problem
with their line of reasoning however. Large numbers of people only leave a
labor force during periods of severe economic distress. It does not
happen during economic recovery. It does not indicate an employment
situation that is improving. Yet, the BLS produces numbers showing things
are getting better when this happens. This violates the first rule of statistics
-- the results must reflect reality. The BLS numbers do not.
Dividing the number of employed in December 2011 by the size of the
labor force that should exist based on the population numbers produces
an unemployment rate of 9.6%, not 8.5%. This is the headline number that
should be reported. If the BLS wants to insist however that more than three
million people have indeed left the labor force (and this has continued in
the last year -- the size of the labor force in December 2011 is smaller than
it was in December 2010), it should also make it clear that this indicates
that there has been an ongoing recession and no economic recovery has
taken place. Both can't happen at the same time, except for a brief
period. Either the economic recovery story is a lie or there hasn't been a
shrinking labor force.
While mainstream economists will insist that employment is a lagging
indicator (more than two years is some lag), this has only been the case in
the U.S. years after statistical "improvements" were introduced in the 1980s
and 1990s in how government economic numbers were determined.
Before that, employment recovered with improving GDP as should be the
case. If you think about it, the term jobless recovery makes as much sense
as tall midget or genius moron.
The improvement in the weekly unemployment claims is also being cited
as evidence of an improving jobs picture. It would be more accurate to
say that it is evidence of a jobs picture than can't continue to get worse. As
I have stated since at least mid-2010, the weekly claims number will
regress toward the mean (move to its long-term average) because
eventually there will be few workers who remain to be laid off. After being
elevated for several years, the only way that weekly claims can now
increase is with a big jump in bankruptcies. This will be avoided as long as
the economy holds steady.
What is keeping the U.S. economy from getting worse is the
unprecedented budget deficits that the U.S. is running. If you spend an
extra $1.3 trillion dollars that you don't have as the U.S. did in 2011, this will
certainly stimulate the economy in the short-term since much of this
money winds up in consumer pockets and they spend it. According to the
non-farm payrolls report for December, the U.S. is not exactly getting good
value for this money. Unless of course, you think low-paying courier and
messenger jobs should be the cornerstone of the economy.
Disclosure: None
Daryl Montgomery
Author: "Inflation Investing - A Guide for the 2010s"
Organizer, New York Investing meetup
http://investing.meetup.com/21
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