Over the past few years, we have railed at the prettyfied numbers that come out of BLS regarding NFP job creation and the unemployment rate. From the Birth Death Adjustment to the understated unemployment rate, the official data (and corresponding headlines) painted a very misleading picture of what was going on. No conspiracy, mind you — just a creeping bias that has slowly distorted the data.

Hence, the past few years of aberrational, credit-driven economic growth was hidden from the public view. Many (tho not all) of Wall Street Economists were too hapless or cowardly to point this out. And some even cheerleaded the absurdity of the “Goldilocks” BLS data. Some simply declared the US a Nation of Whiners.

With the economy now in a full blown recession, and the Housing and Credit crisis getting worse, it hardly semed necessary to pile on BLS. Until Friday’s report. As bad as it was, looking beneath the headline data hows that it was worse — much worse — than reported. Consider the following:

Unemployment:  U6 (Table A-12, Alternative measures of labor underutilization), the broadest measure of unemployment, jumped to 12.5%. This is the highest reading since the U6 measure was created 1994. Note that our A Modest Proposal regarding reporting both U3 and U6 was followed by the NYTimes last week.

Labor Pool:  637,000 left the labor force last month, typically because they could not find work. The shrinking labor pool has made the unemployment rate appear better than it really is.  7.5-8% is a slam dunk next quarter, and if things get even a little worse, we could see even 9.5-10% unemployment rate before the recession ends (Remember, Unemployment is a lagging indicator). The NYT reported:

“The number of people out of the labor force — meaning that they were neither working nor looking for work and that the government did not consider them unemployed — jumped by 637,000 last month, the Labor Department said. The number of part-time workers who said they wanted full-time work — all counted as fully employed — rose by an additional 621,000.

Already, the share of men older than 20 with jobs was at its lowest point last month since 1983, and very close to the low point of the last 60 years. The share of women with jobs is lower than it was eight years ago, which never happened in previous decades.”

Companies Adding Jobs:  For this data, turn to diffusion index (Table B-7, Diffusion indexes of employment change). These figures are the percent of industries with employment increasing; It crashed from 37.8 to 27.6.(50% percent is the midpoint, indicating an even balance between hiring and firing).

Seasonal adjustments: To answer the SA question, we turn to John Williams of Shadow Government Statistics. John notes that the headline 533,000 jobs loss  — net of concurrent seasonal adjustment bias — would have shown a monthly jobs loss of 873,000. Over the course of the past year, SGS suggests that job loss number was actually understated by 955,000.

Underemployment: Lastly, Bill King points us to the this article in the Washington Post, Rising Underemployment Contributes to Pain of Jobs Slump:

“The government does not count some types of underemployed workers — those who are overqualified for their current work, for instance. But it does count people who are working part time when they would prefer full time. That count has jumped by 2.8 million in the past 12 months, to 7.3 million.

There are people in a worse position. In all, 10.3 million were reported unemployed in November, sending the nation’s unemployment rate to 6.7 percent, the highest level in 15 years.”

Underemployment measures provide a more accurate measure of what the economy is like for labor.
>

Previously:
Unemployment Reporting: A Modest Proposal (U3 + U6) (June 2008)

http://www.ritholtz.com/blog/2008/06/unemployment-reporting-a-modest-proposal-u3-u6/

Pervasive Pollyannas of Prosperity (July 2008)

http://www.ritholtz.com/blog/2008/07/pervasive-pollyannas-of-prosperity/

Sources:
Table A-12, Alternative measures of labor underutilization

http://www.bls.gov/news.release/empsit.t12.htm

Table B-7, Diffusion indexes of employment change

http://www.bls.gov/news.release/empsit.t20.htm

Grim Job Report Not Showing Full Picture
DAVID LEONHARDT and CATHERINE RAMPELL
NYT, December 5, 2008

http://www.nytimes.com/2008/12/06/business/economy/06idle.html

Rising Underemployment Contributes to Pain of Jobs Slump
Michael S. Rosenwald
Washington Post, December 6, 2008; Page D01

http://www.washingtonpost.com/wp-dyn/content/article/2008/12/05/AR2008120503293.html

Category: Data Analysis, Economy, Employment

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.

37 Responses to “NFP: Even Worse Than Reported”

  1. Scott F says:

    Now I know while you are only “Bullish sort of”

  2. Concerned American says:

    Unemployment/underemployment is understated and is THE BIGGEST problem we have, not the sub prime mortgages nor the derivatives or any other label put on the CRISIS.

    We don’t have enough jobs and especially jobs you can get ahead with. The best of jobs lose less ground, but very few actually allow an opportunity to improve your lifestyle.

    Thank You greedy CEO’s and Republicans. At least somebody’s life got better (for a short while anyway).

  3. Bruce in Tn says:

    Unemployment is a lagging indicator. [BR: Hence, why I wrote “(Remember, Unemployment is a lagging indicator)”]

    But what do you think about how rapidly these cuts are coming…?

    The last 3 months have been brutal. What does that say about 2009?

  4. Jojo99 says:

    “Labor Pool: 637,000 left the labor force last month, typically because they could not find work. The shrinking labor pool has made the unemployment rate appear better than it really is.”

    The government also counts anyone who works even 1 hour in the survey period as FULLY employed. [BR: I don’t believe that is accurate]

    Other than making the headline number look good for the MSM to report, I do not see how eliminating people from the unemployment count because they have become disillusioned as helping the situation. You can’t solve a problem until you understand the full extent of it. Lately, I have seen some MSM outlets (such as the Washington Post quoted above) talking about the U3/U6 components in their reports, which is good. I hope they keep at it, as maybe this will force the government to report accurate numbers, if they can’t hide the reality anymore. Then perhaps we we can begin to address the problem of how to provide full employment opportunities for all who want to work.

  5. DP says:

    Meanwhile, the futures are up 200 points at time of writing and a lot of people seem to be expecting a big rally this week, go figure.

  6. John Borchers says:

    Giddy Up! We will fix this problem but it will take time. I expect US to go into a little bit of protectionism during the next 10 yrs. At least significantly reduce unfair free trade agreements.

  7. Jojo99 says:

    @Bruce in Tn Says: Unemployment is a lagging indicator…

    Yes, but this oft thrown-about statement only means that growing unemployment numbers are confirming that the economy is in poor shape NOW.

    However, unemployment numbers could also be a leading indicator, indicating that a smaller universe of employed people will have less money to spend. As long as the monthly unemployment numbers continue to remain high or grow higher, then the likelihood of a future recovery declines. People need jobs to pay their bills and to have discretionary money to spend. Without consumer spending, the American economy is not going to recover anytime soon.

  8. John Borchers says:

    Barry if we open over 900 and break that 30MA are you in? or are you already in from last week?

  9. ironman says:

    Here’s an interesting stat out of the household portion of the latest jobs data (Table A), which looks at total employment levels (as opposed to non-farm payroll, which is most frequently referenced in the media):

    The same BLS report shows that between October and November 2008, some 676,000 individuals are no longer counted as being employed. Of these, 215,000 (or 31.8% of the monthly decline) are between the ages of 16 and 19 years old. Those Age 16-19 account for just 3.61% of the entire U.S. working population as of November 2008, down from 3.74% a month earlier, and down from the high of 4.34% set in May 2006.

    Since November 2007, when total employment peaked in the U.S. (and spanning the full period in which the NBER has found the U.S. to be in recession), 26.2% of the entire decline in the number of employed individuals in the U.S. is represented by people between the ages of 16 and 19. If we include those young adults between Age 20 and 24, you’ve covered 47.4% of the total decline of employment in the U.S. for the period.

  10. With readily observable results, like this.

    I find it amazing that there are calls, from other quadrants, for the “Gov’t” to displace the NRSROs with, another, one of their ‘Bureau’(s)
    http://www.thefreedictionary.com/bureau

    yes, def. #3 a.

  11. Steve Barry says:

    Should be an intersting open…it should propel the 10 day MA of market put/call to near 3 year lows, and the Dow near heavy resistance at 8800…all on the worst news of the last 50 years.

  12. Stuart says:

    I think you’re being polite terming this tendency it “creeping bias”. There’s zero chance that those who give the final say to release the reports aren’t aware of these absurd and blatant measures to understate unemployment such as excluding disillusioned and discouraged workers (which above all is the precise category that should be captured), well, there is also no chance that it has not been discussed amongst top level management at the BLS, yet it remains. As with changes to inflation always understating inflation through various “adjustments”. Allowing one to be forced to substitute steak downwards through the food chain eventually to relying on dog food in one’s diet, yet surmise all the while that food costs are not rising, well one can only conclude that top level managers could not possibly be unaware of this absurdity yet, it too remains. Creeping bias. No. Top level management’s intentional desire to understate unemployment and inflation as it better fits government policy and the official “feel good story”, yes. There is a clear and deliberate effort to push a better “perception” on to the public. Is this effort limited to one individual, No.

  13. DP:
    Foreign markets ended up 5-7%. The major European markets are up the same amount right now. Who ever said Wall Street9meaning the exchanges) was reality based?

  14. Steve Barry says:

    No such thing as creeping bias…I think it BR might be in the camp that thinks it is not cool to hype conspiracy theories and he may have went too much in the other direction on this one.

  15. Stuart says:

    One only needs to be concerned about little secrets as the large ones are too incredulous to be believable. A commented uttered by deep throat I had heard.

  16. leftback says:

    @JM: Looks like the warnings of upside risk are falling on deaf ears. Barry, I guess $40 crude was a significant support level, after all.

    This rally is being driven by commodity stocks. King $ has finally hit the wall. A few of us have been warning about this for some time. So much of the rally was short covering that now there is no-one left to buy the $. Right now this is a good thing. The strong $ was killing US exports and the same was true for the strong JPY. Both currencies can be expected to weaken a bit in response to reflationary central bank efforts.

    @ Steve Barry: Nothing significant has changed structurally yet – but watch out, for these bear market rallies sometimes exceed expectations. I think we are going to blow through 900, and I am not looking to get short in a big way until we see 1000 overhead. We ran out of sellers of commodity stocks last Thursday.

  17. Steve Barry says:

    leftback:

    As I knew from my inside look at the market put/call, the 10 day ma is now .87 with today’s strong open. This is right at yearly low. If you have been looking to get short and waiting for the opportunity, this is it. Also, I believe the Dow is making a 12 year head and shoulder and we are right at the high point of the right shoulder…the neck is 7500-8000….so if the recent lows are taken out, I see much lower lows.

  18. Mannwich says:

    Anyone with any common sense knows that the underemployment numbers in this country is the most underreported phenomenon that has taken place with regards to the employment situation in this country over the past 10-20 years+ so this is not surprising at all.

  19. Mike in Nola says:

    I see the pigs are in clover over at CNBC. Kudlow in full flood. An idiot trader talking about how wonderful Reagan was. The hot babe speaking French.

    Leftback: SRS down to 89. Cancelled my buy at 82 as I agree with you that this could go up aways, although I said that a month ago. Maybe we can get back in soon. One possible problem is that I saw something about one of the big REITs trying to change into a bank so it could get a piece of the free money.

    Have been in another world since Thurs. Sold the house in NOLA Friday to the Ursulines and have been doing a lot of moving out/in of storage and hauled everything to Houston in a 22 foot truck and got all the overflow (quite a bit) into storage last night. Have a lot of catching up to do after I deposit the checks from the sale and become an offical Texan at the DMV.

  20. Darkness says:

    The male and female employment chart pron are interesting, but since it is 20+ with no top end, that plateauing of the women’s numbers could simply be longer life expectancy.

    It’s unfortunate that underemployment is not better tracked and dealt with. When times are good, that’s the best time to take action on that under utilization of human potential. Instead politicians just pat themselves on the back for this one linear number and go home to their districts early.

  21. Mannwich says:

    @Mike in Nola: SRS getting close to your 82 target. Jumping in yet? I’m buying more at those levels…….

  22. surferdude says:

    Unemployment is a lagging indicator. [BR: Hence, why I wrote "(Remember, Unemployment is a lagging indicator)"]

    This fallacy needs to be put to rest. Only after the economy troughs, does the UER continue to go higher and thus become a lagging indicator. However, at the on-set of a downturn the labor market contracts contemporaneously with the economy. This is why the performance of the labor market is among the factors that NBER uses to date the economy. I have developed a recession signal indicator using the performance of the labor market and it has accurately signaled all post WWII recessions. A call to say the economy was in recession could have been accurately made on April 4th of this year after release of the March NFP report. (Also this accurately signaled the economy was in recession in August 2001, 5 weeks before 9/11).

    We are some time away from the trough in this cycle. Hence, the bulls that are using this bad report to support buying equities on the lag fallacy will be disappointed.

  23. Mike in Nola says:

    Mannwich: I wound up cacelling the order for the moment. Since it seems to be dropping like a rock, may be able to buy it in the 70′s.

  24. Transor Z says:

    Law school and med school classes are now 51% female. While there is still a wage gap between men and women, more than ever they are directly competing with one another for jobs. Note the closely tracking curves of both sexes in the NYT chart from about 1990 to present. The chart shows a net loss of jobs for men but a net gain for women since 1990.

    Q: How prevalent is the stay-at-home dad phenomenon?

  25. Mannwich says:

    @Mike in Nola: Saw that. Sorry, still waking up. You might be right. I’ll probably do the same thing. I’m not going to fight the trend here today/this week and that trend seems to be green. Looking like a Santa Claus rally. Still think next year will be very bad though. Taking a wait and see approach. Loving some of my commodity & energy longs today though.

  26. Steve Barry says:

    QQQQ bids dropped from 30.06 to 29.85 in a blink…any news?

  27. rww says:

    A rally on the stimulus plan is just plain dumb. There is no conceivable way any stimulus could reproduce the consumption/construction frenzy that drove the last ten years of perceived growth. But the market sure seems like it wants to go up for a while.

  28. Mannwich says:

    @rww: Haven’t we seen this script play out before or I am I just insane? The markets have rallied several times on prior bailouts (my head is spinning, there have been so many) and the prior stimulus plan only to then pull back bigger than before when the reality sets in that things aren’t getting any better in the real world…….

    Like CNBC Sucks has said before: “this crash still sucks”.

  29. donna says:

    Well, the comments here certainly show the problem. BR posts seriously about unemployment and underemployment, but the commenters are only concerned with the dollars they can make trading today.

    Our country’s entire problem, in a nutshell.

  30. Mannwich says:

    @donna: Excellent point but several commenters (including myself) did mentioned the employment issue as well and the issue does have an impact (or it should in the real world) on the markets, does it not?

  31. rww says:

    @Donna: extreme levels of unemployment have been baked in the cake for at least the past two years. I think most of us here have done our lamenting already.

  32. AGG says:

    Someone needs to say it so here goes:
    We are now seeing the flip side of all the massive PR from the “perception defines reality” crowd. They convinced most people that things are good, better or best. Now that most of the news is bad, most of the people have gone from happy face to gloom and doom. So yeah, regardless of how accurate the doom and gloom is, most people will thinks it’s worse. As other posters have mentioned, it’s the wages that matter. Obama may “get it” but there’s a whole bunch of powerful assholes that enjoy this economic cataclysm. So two or three more years of intense pain are coming.
    One item that hasn’t been mentioned but should hasten a turnaround to better times after the pain is the fact that, unlike the 30s, the supply chain has computers with “just in time” inventory control. This is why “all of a sudden” you have lots of unemployment starting with China. When demand revives, they’ll open the factories again just as fast. See, I’m not always gloomy.

  33. Transor Z says:

    @AGG:

    Well said. I’d be curious to see what’s going on with average household wages in real terms during the same period. Problem is, you start getting into CPI, another crap indicator.

    If you have to pay $2,000 a month for daycare, one parent giving up a $45,000 job to stay home makes some sense if the other parent gets good benefits at his/her job.

    Common sense tells you something isn’t right when indicators show job growth and low inflation over a 25 year span of “prosperity” and yet, as Barry posted last week, private college tuition is breaking the backs of even “upper middle-class” families and is supplanting retirement investment.

    Conspiracy theorists would claim the Fed has been using smoke and mirrors but I’ve got to think it’s just as likely monetary policy as we have known it will simply go the way of tonsillectomies and New Math. Stuff that seemed like a good idea at the time.

  34. sbailey says:

    So Barry, a question or two. What, in particular to unemployment and NFP, would you have BLS do differently? For example, should it emphasize U-6 as much as U-3 in its press release? Is this a BLS problem or a journalist problem? What I see in the press release is BLS laying out some basic facts, and then presenting data. Included up front in the press release are the falling labor force participation rate, and the increase in involuntary part-time workers and marginally-attache/discouraged workers–all of the elements of U-6. If they did anything more, they would probably be accused of spin one way or another. The data is there every month for anyone to mine. Anyone familiar with labor market data knows that just looking at one or two statistics may miss some important parts of the story.

    What should they do about birth/death? BLS has shown that their March 2008 preliminary NFP estimates were spot on, so that (this year) their estimating procedures, which include b/d, worked well.

    I don’t subscribe to Shadowstats, so I don’t have the gory details about why Williams thinks that job losses have been undercounted by a million over the year. If the seasonal factors are off month by month, it all comes out in the wash comparing current month nominal with same month a year ago. Any details you could share would be helpful.

    And your reader JoJo99 is correct–one hour worked is counted as employed. But the perhaps unstated implication (I don’t mean to put words in anyone’s mouth) that there are millions who fit that description is incorrect. I’ve analyzed 18 years worth of individual wage records in the state of Washington, which include hours worked. The low-hours records are a small portion of the population.

  35. Winston Munn says:

    Maybe if we all start referring to the “Out of Work” Index instead of the “Unemployment” Index we could get the MSM to report U6 instead of U3.

  36. Jim C says:

    The people leaving the work force can no longer be defined by “typically because they cannot find work.” More people are retiring now. Over the next 3 years there will be a mass exodus launched from the workforce. Ask any major corporation that has been around more than 20 years and they will tell you knowledge management of those boomers retiring is a major issue for them.

  37. A data point on unemployment:

    For the fourth quarter of 2004, according to OECD, (source Employment Outlook 2005 ISBN 92-64-01045-9), normalized unemployment for men aged 25 to 54 was 4.6% in the USA and 7.4% in France. At the same time and for the same population the employment rate (number of workers divided by population) was 86.3% in the U.S. and 86.7% in France.

    This example shows that the unemployment rate is 60% higher in France than in the USA, yet more people in this demographic are working in France than in the USA.

    Do you know of any study on the source of this effect? By default it just means unemployment contain about no information about the state of the labour market…