European stock market rallied from a potential bloodbath on news of a "good" US jobs report. What passes for "good" decreases with time.
US futures were solidly in the green at the open but it was an immediate "sell the news" reaction.
Here is an overview of today's numbers.
- US Payrolls +117,000
- US Unemployment Rate -.1 to 9.1%
- Participation Rate -.2 to 63.9% accounting for drop in unemployment rate
- Actual number of Employed (by Household Survey) fell by 38,000
- Unemployment rose by 156,000
- Those dropping out of the labor force rose by 374,000
- Civilian population rose by 182,000, Labor Force declined by 193,000
- Average Weekly Workweek was unchanged at 34.3 hours
- Average Private Hourly Earnings Increased by 10 Cents
- Government employment decreased by 37,000 - a genuine bright-spot
Recall that the unemployment rate varies in accordance with the Household Survey not the reported headline jobs number, and not in accordance with the weekly claims data.
Many of those millions who dropped out of the workforce would start looking if they thought jobs were available. Indeed, in a 2-year old recovery, the labor force should be rising sharply as those who stopped looking for jobs, once again started looking. Instead, the labor force is not expanding at all.
Were it not for people dropping out of the labor force for the past two years, the unemployment rate would be well over 11%.
June 2011 Jobs Report
Please consider the Bureau of Labor Statistics (BLS) July 2011 Employment Report.
Total nonfarm payroll employment rose by 117,000 in July, and the unemployment rate was little changed at 9.1 percent, the U.S. Bureau of Labor Statistics reported today. Job gains occurred in health care, retail trade, manufacturing, and mining. Government employment continued to trend down.
Unemployment Rate - Seasonally Adjusted
Nonfarm Employment - Payroll Survey - Annual Look - Seasonally Adjusted
Notice that employment is lower than it was 10 years ago.Nonfarm Employment - Payroll Survey - Monthly Look - Seasonally Adjusted
click on chart for sharper image
Between January 2008 and February 2010, the U.S. economy lost 8.8 million jobs.
Ignoring the effects of the census, in the last 10 months of a recovery 2+ years old, the economy is averaging about 129,000 jobs a month. That is very poor as recoveries go.
Statistically, 127,000 jobs a month is enough to keep the unemployment rate flat.
Nonfarm Employment - Payroll Survey Details - Seasonally Adjusted
Average Weekly Hours
Index of Aggregate Weekly Hours
Average Hourly Earnings vs. CPI
"Success" of QE2
Over the past 12 months, average hourly earnings have increased by 2.3 percent. The consumer price index for all urban consumers (CPI-U) was up 3.4 percent over the year ending in June.
Not only are wages rising slower than the CPI, there is also a concern as to how those wage gains are distributed.
BLS Birth-Death Model Black Box
The BLS Birth/Death Model is an estimation by the BLS as to how many jobs the economy created that were not picked up in the payroll survey.
The BLS has moved to quarterly rather than annual adjustments to smooth out the numbers.
For more details please see Introduction of Quarterly Birth/Death Model Updates in the Establishment Survey
In recent years Birth/Death methodology has been so screwed up and there have been so many revisions that it has been painful to watch.
The Birth-Death numbers are not seasonally adjusted while the reported headline number is. In the black box the BLS combines the two coming out with a total.
The Birth Death number influences the overall totals, but the math is not as simple as it appears. Moreover, the effect is nowhere near as big as it might logically appear at first glance.
Do not add or subtract the Birth-Death numbers from the reported headline totals. It does not work that way.
Birth/Death assumptions are supposedly made according to estimates of where the BLS thinks we are in the economic cycle. Theory is one thing. Practice is clearly another as noted by numerous recent revisions.
Birth Death Model Adjustments For 2011
BLS Back in Outer-Space
Do NOT subtract the Birth-Death number from the reported headline number. That is statistically invalid. However, in my estimation the BLS is back in outer-space.
It is clear the economy is slowing and the BLS model has not picked it up. The model is horrendously wrong at economic turns.
-18,000 may look reasonable but bear in mind that January and July are revision months where the BLS adjusts for prior errors. I believe the BLS has missed another economic turn, and the BLS is terribly wrong following turns.
Household Data
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In the last year, the civilian population rose by 1,781,000. Yet the labor force dropped by 400,000. Those not in the labor force rose by 2181,000.
Were it not for people dropping out of the labor force, the unemployment rate would be well over 11%.
Table A-8 Part Time Status
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There has been almost no improvement in part-time employment in a full year. 8.4+ million workers want a full time job and cannot find one.
Table A-15
Table A-15 is where one can find a better approximation of what the unemployment rate really is.
click on chart for sharper image
Distorted Statistics
Given the total distortions of reality with respect to not counting people who allegedly dropped out of the work force, it is hard to discuss the numbers.
The official unemployment rate is 9.1%. However, if you start counting all the people that want a job but gave up, all the people with part-time jobs that want a full-time job, all the people who dropped off the unemployment rolls because their unemployment benefits ran out, etc., you get a closer picture of what the unemployment rate is. That number is in the last row labeled U-6.
While the "official" unemployment rate is an unacceptable 9.1%, U-6 is much higher at 16.1%.
Things are much worse than the reported numbers would have you believe. Moreover, the unemployment rate is barely better than it was a year ago. It would actually be worse than a year ago were it not for people dropping out of the labor force.
Mass Layoffs Rise, Robots to Replace Workers
In case you missed it, please see Mass Layoffs Rise; One Million Robots to Replace Workers; Looking Ahead: Dismal Job Situation No Matter What Job Report Shows for why this payroll report may be as good as it gets for a while.
Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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