How're we doing on Unemployment? (Feb 2012 Edition)
In October I posted some GDP graphs from the excellent Calculated Risk blog. In summary, "Real Personal Income" was still 5% below the pre-recession peak when ignoring "transfer payments". Additionaly, in four years of recession, the population has grown, and the numbers look worse on a per-capita basis.
In this post, I switch my focus to unemployment.
Unemployment rate has bottomed: Here is a graph (sharper original on Calculated Risk), comparing the rise of unemployment (downward in the graph) in past recessions, and how soon the rate recovered to its pre-recession level.
Post WW-II, the unemployment rate has never turned so weak nor has it remained weak for so long. Based on historical patterns, it is optimistic to think unemployment will return to its recent pre-recession low (about 5%) any time in the next 2 years.
Participation rate falling: One problem with the unemployment rate is that it under-counts dejected workers who have given up looking. The unemployment survey asks something like this: "Did you make specific efforts to look for a job in the last 4 weeks?". Anyone who is not looking is not counted either as employed or as unemployed, but simply as not looking for a job. While the survey does document people who would like a job but have not tried to find one recently, and people working part-time who want a full-time job, the main number -- the official "Unemployment Rate" that is widely reported in the press ignores such people.
In this recession, we have seen a falling "participation rate" (percent of people who are either employed or say they actively sought work in the last 4 weeks). The next chart (click for original) offers a perspective.
The blue line shows that only 64% of adults are working or actively looking for work: this is called the "participation index". This is down from 67% at the peak of the dot.com boom. Notice that even though the unemployment rate (red line) has fallen, the percentage of the population that has jobs (black line) has flat lined.
Who is dropping out: Most of the recent fall in the labor force is among young people (16 to 19 years old). According to the BLS about a million less people in that age group were looking for jobs in 2011 compared to 2008. This explains almost the complete drop in the total labor force.
Didn't we just have a good report? The report published in the first week of Feb showed that jobs increased by 243,000. If jobs actually do increase consistently at that rate, it would indeed be good news. However, the unemployment report contains huge amounts of seasonal adjustment. Fund manager John Hussman explains: "Total non-farm employment in the U.S., before seasonal adjustments, fell by 2,689,000 jobs in January. However, because it's typical for the economy to lose a large number of jobs after the holidays, largely in retail trade, construction, and manufacturing, the BLS estimated that the "normal" seasonal decline in employment should have been 2,932,000 jobs in January. The difference between the two numbers, of course, was 243,000 jobs, which was reported as an increase in employment." Now, there is nothing wrong with seasonal adjustments -- it is the correct procedure. However, the implication is that there is a huge amount of estimation and a huge potential for error when one looks at a just one or two reports. We cannot say with any confidence that employment is actually rising significantly.
Summary: Employment has stopped falling and has become flat.
In this post, I switch my focus to unemployment.
Unemployment rate has bottomed: Here is a graph (sharper original on Calculated Risk), comparing the rise of unemployment (downward in the graph) in past recessions, and how soon the rate recovered to its pre-recession level.Post WW-II, the unemployment rate has never turned so weak nor has it remained weak for so long. Based on historical patterns, it is optimistic to think unemployment will return to its recent pre-recession low (about 5%) any time in the next 2 years.
Participation rate falling: One problem with the unemployment rate is that it under-counts dejected workers who have given up looking. The unemployment survey asks something like this: "Did you make specific efforts to look for a job in the last 4 weeks?". Anyone who is not looking is not counted either as employed or as unemployed, but simply as not looking for a job. While the survey does document people who would like a job but have not tried to find one recently, and people working part-time who want a full-time job, the main number -- the official "Unemployment Rate" that is widely reported in the press ignores such people.
In this recession, we have seen a falling "participation rate" (percent of people who are either employed or say they actively sought work in the last 4 weeks). The next chart (click for original) offers a perspective.
Who is dropping out: Most of the recent fall in the labor force is among young people (16 to 19 years old). According to the BLS about a million less people in that age group were looking for jobs in 2011 compared to 2008. This explains almost the complete drop in the total labor force.
Didn't we just have a good report? The report published in the first week of Feb showed that jobs increased by 243,000. If jobs actually do increase consistently at that rate, it would indeed be good news. However, the unemployment report contains huge amounts of seasonal adjustment. Fund manager John Hussman explains: "Total non-farm employment in the U.S., before seasonal adjustments, fell by 2,689,000 jobs in January. However, because it's typical for the economy to lose a large number of jobs after the holidays, largely in retail trade, construction, and manufacturing, the BLS estimated that the "normal" seasonal decline in employment should have been 2,932,000 jobs in January. The difference between the two numbers, of course, was 243,000 jobs, which was reported as an increase in employment." Now, there is nothing wrong with seasonal adjustments -- it is the correct procedure. However, the implication is that there is a huge amount of estimation and a huge potential for error when one looks at a just one or two reports. We cannot say with any confidence that employment is actually rising significantly.
Summary: Employment has stopped falling and has become flat.
- From 2007 to 2010, employment dropped sharply. For the last two years, it has been flat.
- The good news: The total number of people employed has started to increase
- The bad news: The increase has not kept pace with the growing population
Trying to make sense of government numbers is difficult. It is said that we must have at least 150,000 new jobs a month to just keep up with population growth. You then take the overage and compare that with the number of umemployed and you do get some idea of how far we have to go. But there is also another number announced every week that does not seem to connect - the new claims for unemployment benefits. Supposedly these are almost all people who have just lost their job for some reason. Those numbers have been running at over 350,000 a week, and have been since the beginning of the recession. On a monthly basis, that is over 1,400,000 newly unemployed. I believe that this number is also adjusted seasonally. I have yet to see anyone suggest how all of these numbers fit together.
ReplyDeleteGood question. The answer lies in JOLTS data. I'll do a brief post, rather than use the comments.
ReplyDelete