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About the October jobs report: new jobs, bought at great cost

2 November 2012

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).

American Workers

Contents

  1. Conclusions
  2. Household survey
  3. Establishment survey
  4. Unemployment
  5. Other important metrics
  6. For more information about US economy

(1)  Conclusions

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%
Employed 142,101 143,384 1,283 0.9%
…Employment-population ratio 0.58 0.58 0.00 0.0%
Full-time 114,388 115,459 1,071 0.9%
Part-time 27,757 27,875 118 0.4%
Unemployed 12,544 12,258 -286 -2.3%
…Unemployment rate 8.1% 7.9% -0.2% -2.5%

.

(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
Total nonfarm 133,436 133,755 319 0.2%
Total private 111,432 111,744 319 0.3%
Total government 22,004 22,011 7 0.0%

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(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
U-1 4.4% 4.4%
U-2 4.5% 4.2%
U-3 8.1% 7.9%
U-4 8.6% 8.4%
U-5 9.6% 9.3%
U-6 14.7% 14.6%

.
(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

  1. A certain casualty of the recession: the US Government’s solvency, 25 November 2008
  2. 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
  3. See the very essence of the US government’s financial problems (clue:  it’s us), 2 April 2010
  4. The Robot Revolution arrives, and the world changes, 20 April 2012 — about structural unemployment
  5. The Titanic’s lessons for us about the coming economic crisis, 4 June 2012
  6. America is rich and powerful because we can borrow. Will this debt build a stronger America?, 5 June 2012
  7. US economic update. Everything that follows is a result of what you see here., 8 June 2012
  8. America’s strength is an illusion created by foolish borrowing, 10 October 2012

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9 Comments leave one →
  1. guest permalink
    2 November 2012 10:02 pm

    This is the quantitative side of things. The qualitative aspect is essential as well, though missing: what kind of jobs are being created?

    It is one thing to re-hire low-paid sales attendants for the Christmas season, another one to hire an experienced machine-tool operator to be trained on new equipment planned to be used for several years.

    Like

    • 2 November 2012 10:15 pm

      Agreed! Too much of the US job growth is part-time, minimum wage, no benefits — and no potential.

      The optimists say that job growth is the first step towards wage & benefit growth (including qualitatively better jobs).

      IMO, there’s too much fog in the macroeconomic situation for a reliable forecast.

      Like

  2. 3 November 2012 5:03 pm

    “The optimists say that job growth is the first step towards wage & benefit growth (including qualitatively better jobs).”

    Would these Optimists happen to be Economists? Who was it who said the only purpose of economics is to make Astrology look good?

    I think there is a bit more than fog in the Macro to make forecasting difficult.

    Breton

    Like

    • 3 November 2012 5:56 pm

      “Who was it who said the only purpose of economics is to make Astrology look good?”

      I don’t know, but it’s an extremely dumb statement. It shows the increasingly anti-intellectualism sweeping through America. Similar statements crop up in discussions of many sciences. Medicine, psychology, climate sciences, etc. These are especially sad given the rapid process being made in most of these fields.

      As for economics, there is an easy test. Take some money and invest against the economics-trained people who dominate the large and zero-sum trading markets. Such as currencies. See how long you last against those people training in something no better than astrology. But first, kiss your money good-by.

      In the real world, unlike American’s anti-science ignorance, economic theories have guilded the development of the great prosperity of the past 200 years. A world of almost unimaginable complexity and prosperity compared to anything seem before in history. It’s not perfect, as should be expected for anything so large and rapidly evolving, but works by the only standard that counts: the hard logic of history.

      You can enjoy a better system. In heaven. But you have to die to get there.

      Like

  3. Thomas More permalink
    4 November 2012 2:30 am

    FM claims economics is a science and offers this alleged test: As for economics, there is an easy test. Take some money and invest against the economics-trained people who dominate the large and zero-sum trading markets. Such as currencies. See how long you last against those people training in something no better than astrology. But first, kiss your money good-by.

    That’s not a valid test because studies have shown that the giant brokerage houses and big hedge funds consistently win in the market by cheating. They lie (sell investments as “grade A” when the ivsetments are known junk, then secretly take counterparty positions to make huge profits at the expense of their customers, whom they derisively call “muppets”), scam (use fantastically complex financial instruments created by in-house “quants” who are former math and physics PhDs, all designed to obscure the valuelessness of the allegedly “solid” investments they offer), and use ponzi schemes and other forms of fraud (during the dot-com bubble investment houses on Wall Street sold worthless stock in companies like pets.com based on the fraudulent theory that all bricks-and-mortars stores would disappear; during the housing bubble, Wall Street brokers sold worthless subprime mortgages based on the fraudulent theory that housing prices have never dropped for any extended period in American history outside the Great Depression), all in order to rip off their customers. And then if the investment house brokers do manage to lose money even though they’re using every form of imaginable fraud and con job, they simply go to the U.S. government and demand to get bailed out because they’re “too big to fail” — and then, once the Wall Street traders have gotten bailed out, they pay themselves huge bonuses out of those taxpayer funds and continue business as usual.

    Wall Street investment houses and giant banks manage all this because they bribe legislators with hundreds of millions of dollars of campaign contributions per year, and because high positions in the SEC and the Treasury department (which decide on which regulations Wall Street scammers must follow and which penalties the Wall Street thieves must suffer when their fraud comes to light) are almost all staffed by a revolving door of Wall Street thief and scammer CEOs.

    Give me a government bailout any time my business goes broke and let me cheat my customers with no meaningful penalties, and I too can make a lot of money — at any business. I could making money selling dog turds on a stick as dessert under those conditions.

    Like

    • 4 November 2012 4:11 am

      “That’s not a valid test because studies have shown that the giant brokerage houses and big hedge funds consistently win in the market by cheating”

      More,

      I am second to none in acknowlegement of (and admiration of) the ways Wall Street cheats and lies. But my comment was specific to the “large zero-sum markets like currencies.” These consist almost entirely of professional and institutional players — who are not easily cheated. I know of no studies showing “consistent” cheating in those markets. There are instances of insider trading and front-running, endemic at some level to all markets (eg, information is valuable) — but not on a large scale.

      Your statement is not correct, based on what I’ve read about those markets.

      Like

  4. 5 November 2012 4:52 am

    “Who was it who said the only purpose of economics is to make Astrology look good?”

    I don’t know, but it’s an extremely dumb statement.(Per FM)

    JK Galbraith. Yup, he the great anti-intellectual is said to have coined that humorous quip.

    You might consider reigning yourself in once in awhile, sir. There really is an edge of humor that enlightens many of these discussions. Economics like any social science continues to fight the good fight for legitamacy but stumbles and bumbles along more clueless since it left the Humanities.

    Breton

    Like

    • 5 November 2012 2:08 pm

      (1) “JK Galbraith. Yup, he the great anti-intellectual is said to have coined that humorous quip.”

      It was not by Galbraith. It was a funny about economists by an economist — Ezra Solomon, Prof of economics at Stanford and member of the Council of Economic Advisors (1971–1973).

      (2) “There really is an edge of humor that enlightens many of these discussions.”

      Agreed. Unfortunately, I don’t do humor well. Looking at it in hindsight, that quip looks indistinguishable to me from the hundreds of other slams against economics in the comments.

      Also, I’ve no sense of rhythm either. So these limitations will crop up now and them, along with other errors and such. It should be tolerable unless I start telling jokes or posting audio streams of me singing.

      Like

    • 5 November 2012 5:39 pm

      Breton’s comment deserves more analysis.

      To repeat my initial comment, I plead guilty on all counts. But there are mitigating circumstances.

      Think of this approach as marketing: long technical articles, with comments’ responses by a humorless pedant. But with photos of Katy Perry! It’s a niche all our own.

      But we’ve never satisfied on the FM website, so let’s look deeper.

      The search for truth, like making of sausage, is not pretty. I see myself living in a footprint along a path trod by giants. What sort of people were they?

      We have nothing written by Socrates. Socrates is the hero in Plato’s fan-fiction. But I wonder what the other participants at those dinners would have written? Perhaps something like “Socrates is a bit of a dick, but OK after I’ve had a dozen drinks.” He was a joke in Aristophanes’ play “The Clouds”, mirroring the crowd’s viewpoint.

      How would a non-Christian read the Gospels, from one perspective fan-fiction about Jesus (who also neglected to leave any writings). They would wonder what the Pharisees and bankers would have said. They too probably would consider Him as a bit of a dick. Jesus, of course, gets the last laugh by sending them all to Hell.

      What does all this mean? Please share your opinions. I’m going to Google Image for research to my next post…

      Like

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