Unemployment

Last week, I talked about Interest Rates and Inflation in my kinda weekly cobbled together informational post.


This week, I'm going to do a two-parter on Unemployment.  (Charts from my post last week) So here's the first part.  Definition, numbers from the disastrous announcement from last week, and reflections from various sources.  The add on will be a broader look at unemployment and why it's an important metric.

The Bureau of Labor Statistics publishes the Current Population Survey (CPS) – “a monthly survey of households conducted by the Bureau of Census for the Bureau of Labor Statistics. It provides a comprehensive body of data on the labor force, employment, unemployment, persons not in the labor force, hours of work, earnings, and otherdemographic and labor force characteristics.”

From the BLS:

“The labor force is the sum of employed and unemployed persons. The labor force participation rate is the labor force as a percent of the civilian noninstitutional population.

Employed persons consist of: persons who did any work for pay or profit during the survey reference week; persons who did at least 15 hours of unpaid work in a family-operated enterprise; and persons who were temporarily absent from their regular jobs because of illness, vacation, bad weather, industrial dispute, or various personal reasons. The employment-population ratio represents the proportion of the civilian noninstitutional population that is employed.

Persons are classified as unemployed if they do not have a job, have actively looked for work in the prior 4 weeks, and are currently available for work. Persons who were not working and were waiting to be recalled to a job from which they had been temporarily laid off are also included as unemployed. Receiving benefits from the Unemployment Insurance (UI) program has no bearing on whether a person is classified as unemployed.”

From Econ Model:

The official definition of the unemployment rate, given below in a series of four definitions, contains a couple of unavoidable complications.  (1) A person who loses a 40 hour per week job, but works for one hour mowing a lawn for pay is classified as employed.  (2) A person who simply expresses interest in having a job is classified as unemployed.  "Discouraged workers" who have lost a job, but do not make an effort to find a new job in a given week are not classified as unemployed or even as in the labor force.  Both possibilities mean that the announced unemployment rate is not as definitive as it might sound.
Nonetheless, the unemployment rate is defined as the number of unemployed persons divided by the labor force, where the labor force is the number of unemployed persons plus the number of employed persons. 

The following information / blurbs/ stats are from the Economist http://www.economist.com/blogs/freeexchange/2011/07/americas-labour-market & Jason Kelly http://jasonkelly.com/letter/

June 2011: the number of non-farm jobs rose a meager 18,000

May 2011: non-farm increase of 25,000

Feb – April: averaged 215,000/month

(U-3)Unemployment rate:

June, 2011: 9.2%

May, 2011: 9.1%

March, 2011: 8.8%

U-6 employment rate (includes people who have given up looking for jobs and part timers who want full time work):rose to 16.2% from 15.8%

average duration of unemployment hit a new high of 39.9 weeks.

Long-term unemployed (27 weeks or more) increased to 6.3M from 6.2M.

Those unemployed for less than five weeks grew by 412K, a trend we haven't seen since Aug 2008.

Temp jobs fell 12K, their third decrease in three months, a bad sign since temp trends are an indicator of business confidence and the near future of permanent employment.

Labor force participation fell to 64.1 percent, its lowest since 1984.

So far in this recession and for the first time ever, the unemployed are more likely to drop out of the labor force than to find a job. 

Hourly wages failed to rise and the average work week shrank slightly—bad news for income and thus purchasing power.

Public employment fell, for the eighth consecutive month, led by more layoffs by state and local governments.

Not only did June add less than a fifth of the jobs economists had expected and far fewer than the 125K needed to keep pace with a growing population, reports for April and May were revised lower, May by 29K jobs and April by 15K.

The government began tracking unemployment after World War II. From then to now, the longest period with unemployment higher than 8 percent was 26 months in the early 1980s. We're now in new record territory. June's 9.2 percent was America's 28th month with an unemployment rate higher than 8 percent.

For the president to run for re-election with an unemployment back at 8 percent on Election Day 2012, he would need to create 255K jobs per month between now and then.

The labor pool keeps shrinking due to jobseekers calling it quits or falling off government tracking rolls. If not for that, if the pool were as large today as it was when President Obama took office, the unemployment rate would exceed 11 percent.

Recent government and Federal Reserve efforts have fallen short of expectations, much less hopes. The Obama administration's Christina Romer and Jared Bernstein issued a report in January 2009 projecting future unemployment rates with and without a stimulus plan. According to the "with" scenario, the one that actually unfolded, we should be at 6.5 percent now. Instead we're at 9.2 percent. Even without the recovery plan, Romer and Bernstein projected a current unemployment rate of about 8 percent. That was a key level, as it was supposed to have been the unemployment ceiling if the stimulus plan passed.

The economy is growing at only 2 percent per year with no sign of acceleration, even though the president's budget assumed better than 3-percent growth. "Each percentage point of slower real growth increases the cumulative budget deficit by $3.2T over ten years. Even if growth meets current projections, federal debt per capita will rise from $19,000 in 2008 to $68,000 in 2020."

From Jason Kelly’s Letter:

BofA Merrill: "The June employment report was universally weak and undoes the modest improvement in the economic data we have seen over the last two weeks. We are back where we started; the risk of a cold summer, similar to last year, is palpable."

Barclays: "All in all, an employment report with no redeeming features whatsoever -- employment, unemployment, hours, and wages all disappointed."

Goldman: "Overall, the June employment report was quite disappointing, with basically no positive offsets to the poor headline results."

IHS: "The June jobs report was a shocker. It was far worse than expected, and weak on all key dimensions -- job creation, unemployment, the length of the workweek, and hourly earnings. The recent pattern of jobs suggests that the economy hit a brick wall in May."

MKM: "Unfortunately, leading labor market indicators like temporary help employment, aggregate hours worked, and first-time jobless claims remain weak and thus do not suggest an imminent re-acceleration in the labor market."

PIMCO's El-Erian: "Every aspect of this disappointing report points to the US facing an unemployment crisis."

RDQ: "It is hard to excuse this report on supply-chain disruptions and it suggests that growth momentum evaporated as the second quarter drew to a close."

Larry Lindsey (served Bush 1, Reagan, Clinton): "As bad as things may seem, our country's actual long-term economic and fiscal situation is even worse than Washington's political class recognizes."

Finishing, as always, with the Economist:

In all likelihood, the employment data will improve in coming months as consumer purchasing power and business spirits recover from the fuel price surge. Yet as we argue in an article in this week’s issue of The Economist, there is more to the disappointing trajectory of the recovery than these temporary restraints. America has only just begun to deleverage and a McKinsey study has found that comparable episodes in history have been accompanied by anemic growth and often a return to recession. While America probably won’t fall back into recession absent some new shock, its workers should get used to stop-start growth punctuated with disappointments and soft patches. Americans are not alone in this; Britain has experienced similar disappointments and Spain’s outlook is even more anemic. Both share America’s pre-existing condition of vastly overstretched household balance sheets and the opportunistic infection of exploding government debt.

The steady bleed of public sector jobs shows state and local government austerity is already weighing heavily. Federal fiscal policy is scheduled to tighten in January when a temporary investment tax credit and payroll tax cut expire. Layering on more austerity would pummel an economy still struggling to achieve a virtuous circle of jobs, income and spending. Mr Obama is reportedly pushing to extend the payroll tax cut for another year. That would be good, but that would not represent new stimulus, merely a softening of the fiscal restraint already in train.

And what about the Federal Reserve? Its second round of quantitative easing (QE) was completed at the end of June. The consensus is that it would have to see deflation looming to implement more. I think the bar is lower than that. Ben Bernanke, the Fed chairman, has always worried that rising unemployment could spark a pernicious cycle of declining confidence and spending. If its recent rise continues into the third quarter, expect to see Wall Street raise the odds on QE3. It’s too soon to write the recovery off, but not too soon for contingency planning.