Free Markets, Free People
The eight hundred pound gorilla in the room when one discusses the unemployment rate is its accuracy.
8.1% of what? Apparently, it is 8.1% as measured by those still receiving unemployment benefits, i.e. “actively” seeking work (a requirement to continue to receive the benefits). Here’s the reality:
In April the number of people not in the labor force rose by a whopping 522,000 from 87,897,000 to 88,419,000. This is the highest on record. The flip side, and the reason why the unemployment dropped to 8.1% is that the labor force participation rate just dipped to a new 30 year low of 64.3%.
So, that means people have dropped out of the labor market and some have quit looking for work?
Yes. All one has to do is look at this chart and understand that a huge piece of the labor market has simply vanished from the statistics used to compute the official unemployment rate.
The current labor participation rate is equal to that of January 1982. From a high of 67.3% in January 2000, it has dropped 3% since. That is huge.
Yet, we’re only at 8.1%? Not bloody likely. Not if history is any gauge.
So who are the missing workers?
The conventional wisdom out there likes to explain that huge drop away by claiming that the baby boomers are most likely choosing to retire rather than seek work. They further claim there’s no reason to panic, it’s the old folks dropping out and they have their retirement to fall back on.
In fact, the older demographic has remained steady and, in fact, even seen job percentage increases among those thought to be retiring.
Job holders 55 and up have risen by 3.9 million — and fallen by 8.1 million among those under 55, Labor Department data show. It’s been 50 months and counting since payrolls peaked, a post-war record. Labor releases the April jobs report on Friday morning.
For the 65-69 and 70-74 groups, the employed shares are up 1.1 percentage points and 1.6 percentage points, respectively, over the past four years.
So much for that myth. In fact the early retiree level (i.e. those who claim Social Security at the lowest possible age – 62) dropped to 26.9% last year, the lowest since 1976.
As that final chart points out along with the accompanying stats, it isn’t the baby boomers who are causing the labor participation rate to drop. It is workers in the two younger demographics who’ve stopped getting benefits and still don’t have work.
Political implications? Well one can fudge the official numbers all one wishes, but unemployment is a personal thing. Official numbers don’t mean squat to someone without a job and is unlikely to convince them that things are better than they were.
Whether or not the official number drops below 8% before the election, the reality of unemployment to those 5 million without a job and not carried in the official number remains.
The following statistics were released today on the state of the US economy:
The Monster employment index rose three points in April to 146.
The headline numbers of the Employment Situation were that 120,000 net new jobs were created in April, well below expectations of 165,000 jobs. Added to that weak report were that both weekly hours and hourly wages were unchanged for the month, indicating no serious increase in pressure for hiring or demand for labor. (Well, actually, hourly earnings rose 1¢. Meh.) The unemployment rate, however, declined by 0.1% to 8.1%, which is anything but a good sign. That’s because, in the last month, the labor force again shrank from 154,707,000 in March to 154,365,000 in April, as 342,000 workers left the labor force. Likewise, the labor force participation rate declined to 63.6%, the lowest since December, 1981. Additionally, 141,865,000 people were employed in April, down from 142,034,000 in March, a decline of 169,000 in the number of people employed. So, once again the "decline" in the unemployment rate is nothing more than a decline in the labor force that is faster than the decline in employment. The headline number covers a lot of ugly details in the "A" tables of the report. As always, I’d point out that, if the labor force participation rate were at the historical average of 66.2%, the actual unemployment rate for April would be 11.73%, up from 11.56% in March. Overall, it’s a pretty negative report.
A quickie as I have a busy morning that doesn’t include much blogging:
The April jobs report is a miss!
There were just 115K new jobs created in April. That’s well below the 160K that was expected.
But unemployment rate fell from 8.2% to 8.1% and last month was revised from a gain of 121K to 166K.
So it was a disappointment, but not a catastrophe due to the revisions.
Other key numbers:
- The underemployment rate has stayed flat at 14.5%
- No improvement in weekly hours.
- Average hourly earnings grew 0.2% month over month.
- The labor force participation rate has fallen to 63.6%, the lowest level since 1981.
I’m sure Dale will have more with his daily econ stats. Note how bad the underlying numbers are in the 4 bullet points. The weakness continues and continues to build.
UPDATE (Dale): I just need to offer a little correction to the quoted data above. Hourly earnings did not increase by 0.2%. Hourly earnings increased from $23.37 to $23.38. the 0.2% increase was the over-the-month percent change to the index of aggregate weekly payrolls, which is not the same thing as hourly earnings.