About the October jobs report: new jobs, bought at great cost
Summary: Most people focus on the month-to-month changes in the jobs report, which consists mostly of noise (recently unpleasant noise). The year-to-date and 12-month changes are more reliable, but miss the current trends. Here we look at the change during the past two months. We remain in a slow recovery, somewhat faster than in 2010. Enjoy this progress, as it was bought at great cost. A cost we cannot long continue to pay, borrowing and squarndering the money ($ which instead could be rebuilding America).
- Household survey
- Establishment survey
- Other important metrics
- For more information about US economy
Here we examine the October employment report from the Bureau of Labor Statistics. They conduct two surveys: one of households, one of businesses. They are not directly comparable, each giving different perspectives on the US economy. Today we look at the change during the past 2 months. The picture painted is consistent with the many other streams of information about the economy — effective rebuttal to the partisans who believe that government data is faked to re-elect Obama.
The important detail to know about the recovery: during this period the government’s public debt increased $139 billion — 7.3% of GDP (see debt here and GDP here), one of the higher fiscal deficits in the world. Our shiny recovery results from massive borrowing and spending.
In other words, organic growth has not yet resumed. The US economy has stabilized and slowly improves due to the massive “drugs” of monetary and fiscal stimulus. Both have severe side-effects, which at some unknown point in the future will become problematic or untenable. But the worst side effect was unexpected: the stimulus eliminated pressure for reform. We have had the New Deal stimulus without the New Deal reforms (some of which failed, but the others laid the foundation for the great post-war boom).
(2) The Household survey
The Current Population survey is a simple survey of households, with large error bars but no revisions. It’s worth watching because it’s the basis for the headline unemployment rate, it gives some useful data not in the more-accurate business (establishment) survey, and because some research suggests that the household report shows inflection points before the establishment survey.
During the past year, the number employed growing at the roughly same rate as the civilian non-institutionalized population, although with large variances month to month. But not in September and October, during which the household report shows employment growth four times faster than the establishment report (+1,283 vs 319, both in thousands). The Household report might be showing an inflection point in the economy. It’s too early to say.
Here are seasonally adjusted numbers, in thousands.
|Description||Aug 2012||Oct 2012||Change||Change|
|Civilian non-instit population||243,566||243,983||417||0.2%|
|Civilian labor force||154,645||155,641||996||0.6%|
|…Participation rate in the labor force||0.64||0.64||0.0||0.0%|
|Not in the labor force||88,921||88,341||-580||-0.7%|
(3) The establishment survey
The second survey asks employers to report the number of jobs. It usually shows a similar pattern of growth as the household survey, giving us confidence in the results. During the past two months it shows slow improvement, far slower than does the household report. These are seasonally adjusted numbers, in thousands.
|Description||Aug 2012||Oct 2012||Change||Change|
(4) Measures of Unemployment
(a) New claims for unemployment insurance are one of the most accurate and useful real-time metrics
Compare the change in the seasonally adjusted numbers of the 4-week moving averages (source here) of August and October. Faster decline than either the CPS and CES surveys. Despite what the wild men at Zero Hedge says, the tiny upwards revisions to the previous weekly reports are not an important tell of some sort (although they do make the news reports a joke, which can usually show a small rise just due to the typical revision).
- August 2012: 371,000
- October 2012: 367,000 (-1.1%)
(b) The unemployment rate – a complex metric that gets far too much attention
The analysts at BLS calculate six measures of unemployment, from narrow to broad definitions. None is more real than the others; none are easily comparable to the rough estimates of unemployment during the 1930s (the first reliable surveys were in the early 1940s). Most people consider U-3, or U-4, or U-5 as the most useful measure. U-6 includes people with part-time jobs who prefer full-time work, and so includes underemployment.
Any way you count it, unemployment has decreased during the two months. Slowly. These are seasonally adjusted.
|Metric||Aug ’12||Oct ’12|
(5) Another important metric: wages and hours worked
August vs. October 2012 (seasonally adjusted):
- Average private nonfarm hours worked per week: 34.4 vs. 34.4 (no significant change)
- Average hourly earnings of nonfarm private workers: $23.52 vs. $23.58 (up 0.3%)
(6) For more information about the US economy
- A certain casualty of the recession: the US Government’s solvency, 25 November 2008
- Beginning of the end of the Republic’s solvency. Soon come the first steps to a reformed regime – or a new regime., 14 August 2009
- See the very essence of the US government’s financial problems (clue: it’s us), 2 April 2010
- The Robot Revolution arrives, and the world changes, 20 April 2012 — about structural unemployment
- The Titanic’s lessons for us about the coming economic crisis, 4 June 2012
- America is rich and powerful because we can borrow. Will this debt build a stronger America?, 5 June 2012
- US economic update. Everything that follows is a result of what you see here., 8 June 2012
- America’s strength is an illusion created by foolish borrowing, 10 October 2012