A snapshot of the recovery so far, looking at the most important factor: employment

Summary: The US economy continues its slow recovery, under the influence of heavy monetary and fiscal stimulus. Optimists call the recovery “sustainable”, but that’s not knowable until after we end the stimulus programs. Until then the parts of the economy that prosper do so as a result of massive government borrowing and the Fed forcing rates unsustainably low. These are temporary measures — expensive, with serious side-effects — that buy us time. That’s valuable, but only if we use the time to make desperately needed reforms to our financial system. So far we have wasted this time, and it appears the window has closed.

Contents

The Current Numbers: February 2011
The Recovery!
For more information

(1) The Current Numbers: February 2011

Some aspects of employment are leading indicators, some are lagging indicators. Broadly speaking, employment is one of the major metrics of the nation’s health, both economic and social.

These are seasonally adjusted numbers from the Census’ Household Population survey for February, released 4 March 2011. IMO the household survey gives a more reliable real-time picture than the establishment survey (CES), which measures civilian non-farm employment. Here’s the story for February. All rounded to the nearest million. It’s almost identical to the numbers for the past few months.

239 million – the civilian non-institutional population, adults 16+ years old (17 million are 16-19 years old).
153 million of these are in the labor force (6 million are ages 16-19).
140 million have jobs (4 million are ages 16-19)
27 million of those jobs are part-time jobs; 8 million of those with part-time jobs would prefer full-time jobs.
14 million of the labor force are unemployed: 1 million quit, 8 million were fired, 5 million entered or re-entered the labor force.
1 million have become discouraged and stopped looking.

About the unemployed:

The median duration of unemployment is 21.2 weeks; up from 19.6 in February 2010. It peaked in December 2010 at 22.4.
The mean duration continues to rise: 37.1 weeks, up from 29.8 weeks in February 2010 (table A-12).
The mean is large due to the 6 million workers who have been unemployed for 27 weeks or more. The level of long-term unemployment during this downturn is a post-Depression high.

Much has been made of the declining ratio of workers to population. For example, the fraction of men over 16 who have jobs hit a post-Depression low (63.4 in November 2010; up slightly to 63.9 in February). Get used to it. This ratio can only fall further as the boomers age.

(2) The Recovery!

(a) Wall Street and the media obsess over tiny changes in the monthly employment reports, which are often statistically insignificant. These surveys are not that accurate, and changes of a few thousand mean nothing among 300 million Americans. Instead we should watch the levels and trends. How has employment improved since the recovery started in June 2009? Here are the results for the past 12 months (February 2010 – Febuary 2011, seasonally adjusted, in thousands), from the Current Population Survey of today’s Employment Report.

Civilian non-institutional population 16 or older: up 1,853 thousand (+0.8%)
Civilian labor force: down 312 thousand (-0.2%) — more people moving to “not in the LF” (see below) than entering the LF (above).
Employed: up 875 thousand (+0.6%)
Unemployed: down 1,187 thousand (-8.0%) — Decrease in unemployed larger than increase in employed due to drop-outs.
Not in the labor force; up 2,165 thousand (+2.6%)

The number of unemployed people decreased as they either got jobs of dropped out of the labor force. The civilian over-16 population grew, but the net addition went into “not in the labor force” bin. Here are the net job results for the recovery so far:

From June 2009 to March 2010: down 1,026 (-0.7%)
From March 2010 to February 2011: up 621 thousand people got jobs (+0.4%)

The Establishment report (CES) shows a very tiny gain (22 thousand) gain in jobs during the recovery. But the next benchmark revision will affect numbers since March 2010; recent revisions have substantially reduced the gains.

Almost five trillion dollars in government stimulus doesn’t buy as much recovery as it used to.

(b) What about unemployment?

The Census provides six measures of unemployment, depending on definitions of the labor force and unemployed. The four most widely used (U-3 to U-6. None are easily comparable to those of the great depression (the government began measuring unemployment in the 1940′s; earlier numbers are rough estimates). They can be seen at Table A-15.:

The standard measure is U-3 at 8.9, down from February 2010’s 9.7%
U-4 also includes discouraged workers: 9.5%, down from Feb 2010’s 10.4%
U-5 is U-4 plus marginally attached workers: 10.5%, down from Feb 2010 11.1%
U-6 is U-5 plus part-time workers who want full-time jobs: 15.9%, down from Feb 210’s 16.8%.

Despite the rants of people making stuff up, these alternative measures are not the “real numbers”, nor are they equivalent to the past U-3 numbers. They only go back to 1982.

Important note: There first reliable employment surveys were in the 1940’s. Historical numbers — such as for the Depression — are rough estimates.

As my teachers said, always check one’s conclusions with different methods. Look at new claims for unemployment: the 4 week average is 380 thousand new claims per week, down from the average during 2010 of roughly 460 thousand/week. That’s accurate real-time data, and indications of a slow recovery.

Also — An important component of the Establishment Survey is the birth/death model, the BLS staff’s guess at small business activity. It is not seasonally adjusted, so it cannot properly be subtracted from the final seasonally adjusted CES employment number. In February shows a gain of 112 thousand, part of the total 816 thousand jobs gained. The total jobs gain was 192 thousand after the seasonal adjustment.

(d) Conclusion

Do we have a recovery? Yes, but slow in terms of jobs and wages. A wide range of economic data still suggests that the recovery stalled in Spring 2010 as the stimulus faded, and resumed in late Fall after announcement of the stimulus programs — monetary (QE2) and fiscal (extension of the Bush tax cuts, expenditures larger than the first two stimulus packages).

NOTE: are tax cuts expenditures? Yes, when done without corresponding spending cuts — when they result in more borrowing.

(3) For more information

About the employment report: Why does anyone watch the Establishment Survey (CES) numbers?