A Closer Look at July NFP (or, true UR = 5.4%)

"Officer Barbrady, I call shenanigans!"


Friday’s Non-farm payroll passed with very little commentary, as many have been otherwise distracted with the credit meltdown and increased market volatility.

As I explained early Friday morn, I expected a punk employment report: general economic gloominess amongst the populace, a weak ADP Report, and lastly, the Birth/Death factor.   

However, a closer look reveals NFP was actually much worse than originally reported. There are two elements in this, each of which we have reviewed in the past:

First, contrary to its history, the BLS Birth/Death Model added 26,000 jobs for July. According to Bill King, that’s:

"the most ever jobs for July since the model went dynamic in 1999. In July 2005, the model deleted 72k jobs. Last July it initially deleted 57k jobs  . . ." Here are the ‘post-benchmark’ B/D totals for July since the model went dynamic: -6k (’99), +11k (00), -13k (01), -61k (02), -83k (03), -80k (04), -72k (05), +21k (06). 

Like Bill, we want to know why such a bulge in B/D extrapolated jobs now — in a much weaker economic environment?



The true reveal of the employment situation came from Civilian Labor Force Participation Rate — what we in the past have called NiLF: Not in Labor Force. It has dropped 0.8% to 66.1% from a year ago’s 66.9%. 

Now, you may think that a 0.8% drop doesn’t sound like a whole lot. But apply that to the total Labor Force of 153 million. That means another 1.224 million people are swept off the employment rosters — but instead of ending up in the Unemployment Rate, thei simply get dropped from the data.

At the very least, a more accurate read of the Unemployment Rate is 5.4% — not the 4.6% reported (last July’s unemployment rate was 5%).


Employment status of the civilian population by sex and age
Table A-1.  Employment status of the civilian population by sex and age
BLS HOUSEHOLD DATA, August 3, 2007

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