Early last month, we suggested that it would be more instructive if the media began reporting U3 and U6 Unemployment together. (Unemployment Reporting: A Modest Proposal (U3 + U6)

Northern Trust’s Asha Bangalore appears to have been thinking along the same lines, for her NFP post-mortem includes the following:

Household Survey – The BLS also publishes information about marginally attached persons to the labor force. These folks are either discouraged workers or they want to work and are available but are not working and have looked for work in the recent past.  If we sum the number officially unemployed, the number of marginally attached workers, and the number working part-time for economic reasons we obtain a more comprehensive measure of unemployment. This broader measure of unemployment rose to 9.9% in June (see chart 1) which is significantly higher than the 8.3% rate reported in June 2007.

Note how in the accompanying chart the typical (U3) as well as broader (U6) Unemployment measures are included. The trends are remarkably similar, but the scale on the left and right margins are quite different.

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Mystery resolved: Household Survey, U3/U6 Unemployment

Employment_marginal

See also BLS: Table A-12.  Alternative measures of labor underutilization

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Herein lies one of the keys to of our ongoing discussions as to why the Public is so much gloomier than the Pundits. The pontificators and talking heads are looking at the official U3 scale at left, while the public in the real world feels the U6 scale at right.

A second chart similarly helps to reveal some of the differences between perception and reality: The Birth Death adjustment:

The Birth/Death adjustment factor has given an artificial boost to nonfarm payrolls as the economy has entered a recessionary phase.  The inclusion of the birth/death adjustment process (the adjustment is a consideration of payroll changes occurring as small businesses are established and destroyed each month) has resulted in a decline of 167,000 seasonally unadjusted payroll jobs in the twelve months ended June 2008.  Excluding the birth/death adjustment factor, payrolls have dropped 1.019 million in the same twelve-month period.

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Non Farm Payroll, with and without Birth/Death Adjustment

Nfp_ex_bd

See also CES Net Birth/Death Model.

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Once again, note how in the accompanying chart shows very parallel paths — but with different results. The hypothesized job creation of the B/D model additions serves to makes things look rosier than the  tax receipt based CES measure. The trends are remarkably
similar, but the net results diverge.

The chasm between the fluorescent light crowd and the real world is clearly revealed in both of these charts . . .

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Previously:
Are We Too Gloomy? (June 2008)

http://bigpicture.typepad.com/comments/2008/06/are-we-too-gloo.html

Pervasive Pollyannas of Prosperity (July 2008)

http://bigpicture.typepad.com/comments/2008/07/more-on-the-pub.html

Source:
June 2008 Employment Situation

Asha Bangalore
Northern Trust, July 03, 2008
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http://tinyurl.com/6x73rn

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Category: Data Analysis, Economy, Employment, Psychology

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

21 Responses to “Persons “Marginally Attached to the Labor Force” +B/D”

  1. JWC says:

    Not many comments today. But this is a great post with great charts. No wonder folks feel bad.

    My 55 year old brother had a great managment job in the Title Insurance business. As part of their cost cutting moves, they had him reduce the number of employees, and then met with him and fired him… his salary was too high.

    He was lucky, he found another job. (A smaller, struggling company that needed his qualities.) So, he has a job, is not unemployed. But, the job is out of town and he is away from home four nights a week. And the salary is a whole lot less.

  2. Steve Barry says:

    Why is the B/D always ADDING jobs? Stands to reason in a downturn, it should SUBTRACT jobs. Its numbers are not only questionable, but the theory also seems flawed.

  3. When did the B/D model come into play? Is it a recent thing? Has it been around 20 or 30 years?

    ~~~
    BR: Do a quick Big Picture search on birth death adjustment

  4. BG says:

    Barry,

    Thanks for the excellent posts lately.

    Like a lot of people this weekend, I am just sitting around saving gas watching “Jaws” on the tube.

    While watching, I am also wondering what is waiting for us between now and the end of the year. In my mind, another 10% drop tacked onto the 20% we just recently notched should be fairly easy the way everything seems to be going. I mean we could easily get 5% on any given week, so spreading another 10% out over say 26 weeks has a good chance of occurring.

    I’m really wondering more about what happens after we notch that 30% down in the market. At that point, we will find our self at the lower edge of 10K. If we break 10K, then who knows where we bottom out at.

    While ignoring the market entirely, it doesn’t feel (to me at least) like we are anywhere near the bottom of whatever it is that we are currently in.

    (In my mind, oil has got to break for anything materially starts to improve. Maybe we are close…)

    In any case, celebrate the 4th in your own special way. That is one that our forefathers got right!

  5. All the BLS Stats do not reflect changing times. We know inflation is understated, GDP over stated and employment is higher than everyone thinks. Stock are going down!Everyone likes to talk about stock for the long run, but between 1966-1981 they went nowhere. Sometimes they go down for long periods.

  6. Jim D says:

    So, U3 understates unemployment.

    The Birth Death model overstates job creation.

    Core inflation massively understates inflation, and headline inflation understates inflation too.

    And since the CPI numbers are hinky, that means that GDP’s been overstated as well.

    The OHED housing numbers understate the crash also, but we at least have the Shiller numbers for some honesty.

    There’s probably a good business model in there somewhere, applying what Schiller did with housing and getting a real futures market going as a result.

    We could have one for unemployment, as measured by the number of people actually not working.

    We could have another for inflation, as measured by a basket of goods that actually reflect what people pay for stuff. No more hedonic adjustments, just what do people pay for stuff.

    We could have still another for GDP – that’d be a hoot, an uncooked GDP number.

    Look, I don’t mind that the gov’t cooks the books a little. It’s hard to avoid.

    What I mind is that these idiots seem to then think that their numbers are an honest reflection of the economy.

    And I really, really mind the economists who’ve been quoting these numbers as though they’re honest. That’s starting to really tick me off.

  7. techy says:

    BG..

    if the oil keeps going up, nobody can save the markets.

    but what if oil goes down to around 120? i think the bulls will seize the opportunity and push the market up by almost 10%.

    i think its too risky right now to bet on either side. its better to again go back into cash.

  8. SteveC says:

    Oil is topping out. (See how the oil company stocks are doing the last few days vs. the commodity). The end of the summer driving season is only 7 weeks away. Hang in there, everyone. Relief is coming.

    I don’t think the Fed believes the data either. (At least I hope not). They’re frozen, not knowing what to about it. Not that I welcome a recession, but it is a part of the business cycle. Greenspan believed that he was more powerful than the business cycle, which is how we got into the mess we are today.

  9. NC Jim says:

    When you think about it, U3 is probably the best indicator from the Government’s point of view since these are the folks receiving unemployment checks.

    U6 is the right measure for workers because that is where the misery is.

    Birth/Death model comment.

    I would imagine that a key input to the model is a qualitative measure of where we are in the business cycle. If you appoint a Kudlow type to a leadership position who makes this call, then the model sees a Cinderella economy and the output is what you see. Given how deep into the chain of command VP Cheney is reported to have stuffed political appointees, labor (and other) statistics may well have become part of the “permanent campaign”.

    Jim

  10. johnnyvee says:

    Great post. Also, tax revenues is a great indicator–if things are so great why are states and municipalities struggling?

  11. VennData says:

    I sure hope Cheney moves those BLS boys who did the B/D model over to the FEC in time to apply some adjustments for the upcoming election.

  12. Robert says:

    “The hypothesized job creation of the B/D model additions serves to makes things look rosier than the tax receipt based CES measure. The trends are remarkably similar, but the net results diverge.”

    I do not find the tax receipt based CES measure and no mention of it earlier. Any elaboration available?

  13. bluestatedon says:

    If Obama has even a fraction of the brains he’s alleged to have, he should immediately start educating the voters on these data issues, if for no other reason than political self-preservation. Should he be elected, he will inherit a horrible economic situation. While the rightwing mass media (notably Fox and Rush) refer only to the increasingly discredited “official” figures for unemployment, GDP, and inflation now, you know they will immediately switch their data references to the more accurate numbers BR discusses after the inauguration in order to pin all the blame for the mess on Obama. In other words, on Bush’s last day in office, Rush will use the 3.3% unemployment figure. On Obama’s first day in office, Limbaugh will use the U6 number, and he’ll do it without batting an eye, claiming that the economy has taking a dump precisely because Obama is in office. If you don’t think he’s that much of a lying, cynical dirtbag, guess again.

  14. NC Jim says:

    bluestatedon,

    I don’t expect the Right-wing media to wait for the election. To the big lies (a favored GOP trick) of Mr Obama being no different from all other sleezy politicians and Mrs Obama being “angry” (read uppidy – a classic charge against Blacks trying to rise in the White power structure), add the charge that the markets and the economy are in decline “in anticipation of” an Obama victory (I have heard this a little already – expect more).

    Jim

  15. dwkunkel says:

    Here’s a trenchant interview with economist Walter John Williams on the bogus government numbers.

  16. VJ says:

    What a surprise. This actually made the mainstream media. Betsy Stark, the ABC News Business Correspondent, reported this on the ABC World News:

    A report released by the Department of Labor Thursday highlighted the country’s weak economic state. There are now 8.5 million Americans out of work, and 62,000 jobs have been cut. Unemployment levels are at 5.5 percent. The economy has lost a total of 438,000 jobs so far this year.

    But economists say these figures don’t offer a comprehensive picture of what is taking place; the numbers ignore the growing number of Americans who now work part-time because they cannot find a full-time job. If you factor in these underemployed workers and discouraged workers, who are not counted in the report, the Labor Department said total unemployment jumps from 5.5 percent to 9.9 percent.

    ABC WORLD NEWS LINK

    Wow. First she reports that it is the Big Oil companies that really do not want to build any new gasoline refineries, and now she reports that the Unemployment Rate is really 10%.

    Sounds like someone needs to be ‘reassigned’.
    .

  17. VJ says:

    Joe,

    When did the B/D model come into play? … Has it been around 20 or 30 years?

    Surely you jest.

    It was fully phased in by June of 2003. Just in time to mask the massive job losses resulting from the exalted supply-side economic miracle.

    Can’t have reality clashing with their ideological hokum. Just wouldn’t do.
    .

  18. DL says:

    bluestatedon @ 3:56:16 PM

    “… Obama … should immediately start educating the voters on these data issues, if for no other reason than political self-preservation”.

    He won’t do this.

    Once elected, he’ll want to convince people that they’re better off than they really are.

    Both parties are in this together.

  19. seabos84 says:

    I’ve lived in Seattle since ’89, having moved from Boston where I’d lived since ’78 when I started college during the great stagflation of the 70′s.

    Since the dot-bomb bust, I have NOT sensed / felt / seen any great confidence in people with respect to their ability to quickly replace their job if quit their job or were fired / laid off.

    My contruction crowd friends have done well in the last 6 years, but nothing like the 90′s. My tech friends are all over the hill and don’t dare lose their jobs, but, we do interact on occasion with the latest hot outta comp sci college 24 year old who thinks life will be up up up for ever ever ever.

    this job market sucks, and it has sucked.

    rmm.

  20. Alan Abelson says:

    ANOTHER MONTH, ANOTHER PUNK EMPLOYMENT REPORT.

    We’re always razzing the poor old consensus for its bum forecasts, often so very much off the mark, of monthly employment numbers. So we figure it’s only fair to be nice for a change and commend the consensus for being smack on target. And we’ll even refrain from pointing out that once in a very great while, the guy or gal with a blindfold on does pin the tail on the donkey.

    Anyway, the going estimate on the Street for June was a loss of 60,000 or so jobs and, by golly, the actual number was 62,000. All you members of the consensus, stand, please, and take a bow (it may be a long time before you get a chance to do it again).

    The unemployment rate, meanwhile, which had taken a huge jump in May, the biggest, in fact, in 22 years, held steady at 5.5%. Revisions to April and May swelled the earlier reported totals of pink slips by a combined 52,000.

    The private sector lost 91,000 jobs, with, as you might expect, construction and manufacturing the heaviest hit. The good news was on the skimpy side: The biggest gains in hiring were by municipalities and states, and given the increasing financial pinch afflicting city halls and statehouses just about everywhere, that old reliable geyser looks due to dry up in a hurry.

    Just for the record, governments of every stripe chipped in 29,000 to the job total. There were some 30,000 fewer temps working at the end of June than at its start, which tells you more about the economy than you’d like to hear. It’s also a bit of an evil harbinger for employment.

    That insightful pair, Philippa Dunne and Doug Henwood, cited above, are invariably spot-on when it comes to parsing the monthly job numbers and we’ve passed along their conclusions, many a time and oft. Our only reservation, and a modest one, has been, kindly souls that they are, they were too forgiving of the Bureau of Labor Statistics’ birth/death model, which seeks to capture the jobs added and subtracted by, well, the birth and death of new firms. The device invariably strikes us as a fire alarm that works swell — except when there’s a fire. And in the overwhelming majority of months, it perhaps conveniently serves to bloat the total of jobs added.

    As it happens, we now have reason to forgive Philippa and Doug for being forgiving. Here’s what they say in Friday’s review of the latest jobs report: “Although we usually shy away from pointing to mischief coming from the birth/death model, this seems to be one of those moments when we should overcome our shyness: It added 177,000 to June employment.”

    Duly noting that the birth/death calculation is made without seasonal adjustment, they nonetheless observe that save for it, private employment would have been down a formidable 268,000 or so. Other absurdities: The birth/death model miraculously added 29,000 to rapidly vanishing construction employment, 22,000 to professional business and professional services and — get this — a whopping 86,000 to leisure and hospitality.

    They comment dryly: “Given the weakness of the economy and the crunchiness of credit, we doubt there are enough start-ups around to match these imputations.” Exactly.

  21. Wage disinflation story remains fully intact

    So while the commodity inflation story is still flourishing, the wage disinflation
    story here in the United States remains fully intact. Average weekly earnings
    managed to turn in a tepid 0.3% gain after two months of flattish results. This has
    dragged the year-on-year trend down to a puny 2.8% from 3.4% at the turn of the
    year and 4.1% in June 2007. With the inflation rate expected to approach the 5%
    milestone in June, it means that in real terms, personal incomes (net of the tax
    rebates) are moving deeper into the deflation doldrums. Thursday’s data were
    consistent with unit labor costs running around a 1.2% annual rate in the second
    quarter which is hardly a backdrop than can be characterized as stagflationary.
    Signs of stress in the Household survey

    Many other aspects of this report were troubling and we believe that the absence
    of the oil price surge would have the Fed thinking about another rate cut, not a
    hike. There is just a wealth of information beyond the nonfarm payroll report that
    is contained in the Household survey – which, by the way, showed a 155,000 job
    loss in June.

    Within that report, we like to look at key measures of labor market stress such as (i) full-time employment, which sank 447,000 – a significant 4.3% slide at an annual rate; (ii) job losers who are not on temporary layoff jumped 3.9%; (iii) the number of folks who were bold enough to leave their jobs voluntarily, a key measure of worker confidence dropped 4.3% (iv) multiple job holders rose 1.5%, and this metric has surged at a 20% annual rate over the three months to June as an increasing number of households are trying desperately to make ends meet as the budgetary strains from food, gas, utilities and debt-service costs intensify; (v) the median duration of unemployment, which rose to 10 weeks from 8.3 weeks and underscores the extent to which labor demand is contracting; and (vi), those working part-time for economic reasons shot up 183,000 or by 3.5% and has exploded at a 50% annual rate over the past six months – a clear sign of economic duress.