Is Unemployment Really Declining?
The employment situation may moderate during 2011, but don't expect to see the job growth needed to significantly drop unemployment levels back to pre-crash levels.
I tend to believe the Bureau of Labor Statistics' unemployment numbers in that they indicate marginal gains in employment, although they are probably statistically insignificant. Last Friday's report said that the civilian unemployment rate declined to 8.9% from 9.0%.
According the the BLS:
The number of unemployed persons (13.7 million) and the unemployment rate (8.9 percent) changed little in February. The labor force was about unchanged over the month. The jobless rate was down by 0.9 percentage point since November 2010. …
The number of job losers and persons who completed temporary jobs, at 8.3 million, continued to trend down in February and has fallen by 1.2 million over the past 12 months. The number of long-term unemployed (those jobless for 27 weeks or more) was 6.0 million and accounted for 43.9 percent of the unemployed. …
In February, 2.7 million persons were marginally attached to the labor force, up from 2.5 million a year earlier. (These data are not seasonally adjusted.) These individuals were not in the labor force, wanted and were available for work, and had looked for a job sometime in the prior 12 months. … Among the marginally attached, there were 1.0 million discouraged workers in February, a decrease of 184,000 from a year earlier. …
By major sectors, the goods-producing numbers look good, showing a 70,000 jump, following a 35,000 rise in January. For the latest month, manufacturing jobs advanced 33,000 after a 53,000 boost in January. Even better, only 1,000 of the February gain in manufacturing was for motor vehicles. Construction employment increased 33,000 in February, following a 22,000 decline the prior month. Mining rose 4,000 in February.
Private service-providing jobs jumped 152,000 after a 33,000 increase in January. The latest was led by a gain of 47,000 in professional and business services with 16,000 coming from temp help. Health care employment continued to increase in February, expanding by 34,000. Transportation and warehousing employment increased by 22,000 in February, with half of that gain in truck transportation. On the downside, employment in retail trade slipped 8,000-possibly due to adverse winter weather.
Government jobs fell 30,000, following a 5,000 dip in January.
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Here is the U-6 data, showing that the broadest measure of unemployment also declined:
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The BLS data is consistent with the job cut report for the prior week (Feb 25) which showed another decline in new claims for unemployment benefits:
In order to test this data, we would expect that private data, such as from ADP and Challenger would be consistent:
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The inconsistency in the Challenger report is that it is heavily loaded with government/nonprofits layoffs which skew its data, otherwise they reported private employment as being flat.
So then, why did Gallup come out with a far more negative survey?
Note the household survey of unemployment trend going up as opposed to the BLS trend going down for the same period. Gallup interviewed 18,000 people at random and concluded that 10.3% of those are unemployed. The BLS household survey interviews 60,000 people. So who is right? I'm not a statistician so I don't know. Mish Shedlock usually likes this kind of stuff, but I checked and he doesn't know either. The only thing I can say is that Gallup's data doesn't match the BLS, Challenger, or ADP.
The less sanguine parts of the report were that the civilian labor force participation rate, at 64.2%, and the employment-population ratio, at 58.4%, were unchanged in February. Also, average hourly earnings increased by only $0.01 to $22.87. Which means wage growth remains stagnant. Like Dave Rosenberg, I find this dismaying news but not unexpected. Rosenberg points out that wages have been declining for the past three months:
Why not unexpected after the government's (I include the Fed here) massive efforts at fiscal and monetary stimulus? They have been beating this drum since 2008, and it didn't work then and it won't work now. If you wish confirmation of employment growth, keep waiting until the data is all consistent (job growth, wage growth, loan growth, real estate stabilization).
My belief is that there are natural forces in the economy that tend to repair the problems without any government help (but with plenty of government hindrance). This is the difficult process of liquidating the malinvestments made during the boom phase which is ongoing. One of the major factors of any recovery is a strong manufacturing sector, and indeed, manufacturing is rising. But one reason is the declining dollar and the attractiveness of US goods and services abroad. This is reflected in our international trade:
This "cheap dollar" policy is a direct and intentional result of our fiscal and monetary policy as much as any organic economic growth. As we all know, the currency markets are fickle and another shock somewhere in the world, perhaps the continuing one in the eurozone, will kick the dollar back up despite QE2. But, I believe the continuing trend for the dollar will remain negative in the face of massive fiscal deficits being monetized by the Fed.
I expect the employment situation to moderate during 2011 but I don't expect to see the job growth needed to significantly drop unemployment levels back to pre-crash levels. At best it will s-l-o-w-l-y decline as we meet inflation head-on.
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