Free Markets, Free People

The Unemployment Situation

I see that Megan McCardle thinks the unemployment numbers released today are enough to make her make her “cautiously optimistic” about the jobs picture.  I’ll meet her halfway.  I see room for caution, but not yet for optimism.

Ms. McArdle writes:

It’s very solidly good news: the labor force participation rate was basically unchanged, which means we’re seeing an actual decline in the unemployment rate, not a spike in the number of people leaving the labor force because they can’t find a job.

My reading of the numbers is precisely the opposite.  It appears to me that teenagers, high school dropouts, and those with only a high school diploma, all of whom have high unemployment rates, did, in fact, drop out of the labor force, which led to the decrease in the employment rate.

I also think the numbers are skewed by the seasonal adjustments.  The BLS adjusts the figures for seasonal changes, with extra weighting given to more recent years.  Last November, the Lehman collapse led to the loss of 610,000 jobs–the largest ever recorded by the BLS–so I suspect the weighting for seasonal factors is skewed to the point where the jobs situation may look better than it actually is.

We do see an increase in hours worked of 0.6 hours, but that doesn’t really create new jobs, it just provides more hours for current part-timers.

However, temporary employment rose significantly for the 4th straight month, and it appears that the mass layoffs have petered out.

So, as far as I can tell, there may have been a bottom, but there are still some anomalies that need to be explained before I jump into the optimist camp.

And, of course, none of this even touches on the 800-pound gorilla in the room, which is monetary policy.  The Fed’s policy of quantitative easing, i.e. massive increases in the money supply, still present us with hundreds of billions of dollars in low-velocity money floating around, all of which will have to be absorbed through higher interest rates, or through significant inflation.  The possibility still remains that necessary credit tightening will strangle any nascent recovery over the next 12-18 months, and send the economy on a another downward leg.

It’s very solidly good news:  the labor force participation rate was basically unchanged, which means we’re seeing an actual decline in the unemployment rate, not a spike in the number of people leaving the labor force because they can’t find a job.
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11 Responses to The Unemployment Situation

  • “I see room for caution, but not yet for optimism.”

    I hate to put a damper on your party, but this was NOT good news. How do I know? Because an economist I spoke to on Friday told me the following:

    1. We are still losing jobs. Yes, we are not losing hundreds of thousands a month, but it is still going down, not up. That may change, but so far it has not. You cannot bet on what MIGHT happen…you have to look at current conditions. Until that changes, there is no cause for “optimism.”

    2. For the unemployment rate just to stay the same (and none of this cooking the books on Friday with the rate going down from 10.2% to 10% – that is pure, unadulterated horsecrappola, and people who understand economics know it), the economy has to create 250,000 jobs PER MONTH. That’s for it to stay the same. For it to grow, we are looking at 300,000-500,000 jobs being created each month. That is a massive turnaround from what we have now. Until that happens, The Clown™ can sing about nice conditions, and CNN and MSDNC can tout “the growing economy” all they want, but they are deluding themselves and their listeners if they continue to report that.

    3. The decline Friday from 10.2% to 10% is because some 800,000 people merely STOPPED looking for work. That is not “economic improvement.” Just because the US Department of Labor stopped counting these people does not make the disappear. Maybe The Clown™ wants them to disappear, but they remain a huge drag on the economy, one way or another. Now, the Congress is considering another extension of unemployment bennies, which continues to balloon the deficit.

    4. These numbers, no matter what the liberal talking heads say, are killing Obama’s JARs. Killing them. He is sinking in the polls faster than the Titanic on a warm day. And it will destroy his party in 2010 because there is no way on God’s green earth that things will improve enough by November 2010 to do any good for him. They might get a little better by late 2011, but he will run for a second term with the massive twin drag of unemployment and the deficit (and the third leg being the war in Afghanistan) like an anvil around his neck. And if anyone tells you differently, they are deluding themselves as well.

  • This is anecdotal but telling.  I am a semi-retired consultant who works by the day, usually providing independent views on proposals or specific problem solving with regard to management or marketing.  I’m 65 and I do not want another full time position.

    In the last two weeks, I have received three calls from CEOs I have never met asking for long term help.  After explaining how much I charge, I suggested they hire someone full time.  None of them batted an eye at the numbers and they all flatly ruled out adding employees.

    When I probed for motive, each of them said that they were afraid of unknown increases in indirect cost –  government regulation, healthcare and energy.  Essentially, they don’t know what the government is going to do to their businesses.  Until the way forward crystalizes, they will cut rather than add staff.

  • The good news is that the November numbers do appear not to be pumped up much more than the October numbers using the Labor Dept’s birth/death model, but clearly the months before were pumped up, so at the very least you can say that November is better than October.  That said, the numbers show that the “goodwill” in the number of “births” is always optimistic, so when the “deaths” are inserted in the annual January numbers, expect a shocker come Feb. 5, 2010 when the January numbers come out.

    • The big surprise in the payroll data was the service sector component; it rose 58k.  But we know from the ADP report that service sector employment fell 81k, which was fractionally worse than the 79k decline in October.  Such a discrepancy has occurred less than 3% of the time in the past, and each time, the following month after the big gap, there was a convergence … with headline nonfarm payrolls swinging 100k lower on average, which would imply a 111k decline when December’s figure comes out.

      They must be cooking the birth/death numbers

  • I have respect for most of what Meagan writes, but I have my doubts on this one. It seems to me that she doesn’t leave open the possibility that the numbers she’s analyzing, being pushed by the Obamites, are lies, designed to make her and others say as she has here.

    When so much of what Obama and his people have come up with have been proven as lies, mostly designed for political advantage, it seems to me to show a lack of judgement for her not to even consider that factor in her comments.

  • Lets not forget the number of people who have left the work-force entirely, skewing the numbers even further…

  • I echo Marsden’s first point: We’re still losing jobs!
    As long as we have net job losses, we’re not recovering. Things are just continuing to get worse at a slower pace.

  • I expect the BLS to quietly revise their unemployment rate UP in a month or so, sort of like they revised down the wonderful, awesome, incredible, sure-sign-that-happy-days-are-here-again-thanks-to-Obama GDP growth rate last month.

    I continue to be amazed and disgusted at how openly MiniTru is shilling for Imeme.  Any HINT of recovery is ballyhooed to make it sound as if the recession is over and we’re embarking on a new Golden Age of prosperity.  Meanwhile, we’re up to our ears in debt and ADDING MORE, at least 10% of the country is out of work, people are still losing their houses at a very unhealthy rate, and (AFAIK) all those “toxic assets” are still on the books of the banks around the country (those that haven’t gone belly-up, that is).

    Nobody will be happier than I see to this recession end, but it’s not going to happen until the government stops the policies that have caused / exacerbated it, and THAT’S not going to happen until we have an honest assessment of the situation and how we got here.

  • Look, eventually we will pull out of the recession, if maybe only to hit another one (V shaped) plus the stimulus spending eventually will start hitting, probably right when we come out to add fuel to the growth (and possibly spike inflation etc.)
    This might occur sooner than we think. If this recession was mainly a massive freak out, its possible that as “animal spirits” return to normal, so will the economy. The next shoe is supposedly CRE, but we keep waiting for the sound of it dropping and it aint there yet.
    I don’t want to be that guy who wishes ill on the USA, but for the long run sake, I hope full recovery occurs after 2010 elections. If Obama gets the good times rollin’ by 2012, that’s fine – let him be re-elected with a nice tight gridlock on action by government.
    Also, if the MSM wants to call it over now, so much the better. Because if we call the recession over now, then, why Obama policy really had nothing to do with it. Oh, perhaps stimulus spending (though I am sure its only been spent about 10-20%.) Helathcare reform did not spark the recovery. Cap and trade did not spark the recovery. The free market recovered more or less on its own. This is a better meme than “after healthcare passed, unemployment was lowered, so obviously, nationalizing industry is a good thing” Think about that.

  • ” I hope full recovery occurs after 2010 elections.”
    Just imagine…political gridlock hits as our economy picks up. Taxes sit around where they are at now. No new spending. Investment can pick up.  States may elect more pro-growth people and cut spending.

  • The current recession should not distract us from the unavoidable long term effects of Democrat policies. They are well on the way to establishing a European socialist economy in the US. Among the features of such economies is a stable baseline level of 10 to 15% unemployment overall with 20 to 30% unemployment among recent high school and college graduates. Low labor productivity, low rates of technical innovation and low economic growth rates are also entailed by such policies.
    All of this means that recovery from the current recession will be prevented and that the current situation will become permanent if the Democrats succeed.