Free Markets, Free People

unemployment

Hiding The Decline: What Is The Real Unemployment Rate?

Most likely it is much more than what is officially acknowledged.

That’s because it’s all about how you count them. Right now, for instance, the official unemployment number is 10%. If you add the underemployed, though – people working part time who want full time jobs – that number jumps to 17.3%

But is the 10% number right? Most likely not. Don Surber points to one reason:

Crudele explained: “When the Labor Department puts out the January employment figures on Feb. 4, they will include an assumption that a lot of companies went out of business.

“This is something called the birth/death model that is used by the department. Last year it caused 356,000 jobs to be subtracted from the January job count… Nobody in the media will pick up on this, but the Labor Department will also do something called a benchmark revision on Feb. 4 that will subtract around 840,000 jobs that the government thought existed, but really don’t.”

356,000 jobs here, 840,000 jobs there and pretty soon you have 1,196,000 more unemployed than advertised.

Oops.

That would change that 10.0% to 10.8%.

“Oops” indeed. I have an inherent distrust of estimates based on models. Maybe it’s the AGW nonsense that has turned me so against them. But still, how many “benchmark revisions” have been done in this recession and how many jobs have been shuffled off to the “do not exist anymore” bin without being added to the unemployment rate? In reality, we could easily be in the 13 or 14% area.

The Atlanta Business Chronicle had a short blurb today that gives you insight into the real size of the unemployment problem:

There are 6.4 job seekers for every job opening in the U.S., according to data released Tuesday by the U.S. Bureau of Labor Statistics. That’s the highest rate since BLS began tracking such data in December 2000.

The ratio in December 2007? 1.7 to 1.

~McQ

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White House Job Summit Results? Spend More Borrowed Money

How did I know that would be the inevitable outcome?

President Obama will propose using $200 billion from the Troubled Asset Relief Program (TARP) to support creating jobs, White House officials confirmed Monday.

The president, in an economic speech before the Brookings Institution on Tuesday, will argue that the money would be well spent by funding projects to build bridges and roads, weatherize homes, and provide other assistance for small businesses as well as the unemployed.

Fund projects to build bridges and roads? I thought that was the purpose of the 787 billion “stimulus”. Shovel ready projects correct? The great and wonderful stimulus, if passed, was guaranteed to keep unemployment at 8% or below, remember? How’s that worked out for us?

And, the funds will come from TARP which was borrowed to begin with. Instead of not spending (and paying back the lenders), we’re now going to create jobs weatherizing homes, oh, and giving “other assistance for small business as well as the unemployed”? It may come as a surprise to the people in Washington DC, but extending unemployment and giving the unemployed other benefits does not create jobs. Nor does some complicated bureaucratic adventure in “weatherizing”.

Initiatives which make the decision to hire and expand easy will do that, and there are none on the horizon. Instead we’ll see another 200 billion added to the 787 billion (yes, friends, a few billion shy of a trillion) on this spending boondoggle that’s worked so well in dampening unemployment.

In case you’ve forgotten (via Patterico), here’s the adjusted projected 10 year Obama budget:

revised deficit

The dark red CBO shows the actual cost, not the sanitized cost from the White House. This is our future in terms of spending. We’ve certainly seen all the excuses for spending at that level due to the financial crisis (reasons I am still not convinced are necessarily valid), but what are the excuses for the years beyond 2010? And where is that money going to come from?

It is hard to deny this isn’t planned deficit spending on a level we’ve never even contemplated before. You have to wonder how any politician of any stripe could see those budget numbers as doing anything other than worsening a bad situation. The question some are beginning to ask is whether or not this future is based on the naive assumption that government can spend its way out of financial crisis or another thing altogether.

~McQ

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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.

What? No Jobs? Let’s Talk About It!

Apparently the Obama administration had discovered, 10 months into the presidency, that perhaps jobs are the highest priority for most Americans.

So? So they’re going to have a “jobs summit”. Yes sir, they’re going to get together and talk about it! Because, you know, talking about something always is better than not talking about it, I suppose.

Uh, but not till next month. You know – it’s not that important.

And sure while doing something about a problem is much better than talking about it, talking is what this administration does best.

Look at Afghanistan. They’ve been talking about that for almost 3 months since the commander has made his request. And he’s still talking about it.

But back to jobs:

“Hiring often takes time to catch up to economic growth,” Mr. Obama said. “Given the magnitude of the economic turmoil we’ve experienced, employers are reluctant to hire.”

Of course they’re reluctant to hire – health care is up in the air, cap-and-trade is on the horizon, the government is spending like a drunken sailor on shore leave in Shanghai, it has inserted itself into the business and financial markets to an unprecedented degree and there is no question that taxes are going up – some think dramatically. Why would any business worth their salt be considering taking on new employees or expanding at a time with the future as unsettled as it is?

“We all know there are limits to what government can and should do, even during such difficult times,” Mr. Obama said, “but we have an obligation to consider every additional and responsible step that we can to encourage and accelerate job creation in this country.”

This said by the same guy who assured us that his “stimulus” package would absolutely cap unemployment at 8%. We’re at 10.2% and rising and he’s reduced to pretending a smaller number of unemployed submitting applications for unemployment benefits than did last week is “progress”.  Oh, and using fake “saved and created” numbers.

Of course there are things the government can do to “encourage and accelerate job creation” that have absolutely nothing to do with more spending or extending unemployment benefits. But my guess is those won’t even be brought up much less considered. In fact my guess is the cry, led by Paul Krugman and others, is going to be “mo money”.

But hey, jobless folks, take heart. They’re going to talk about it. Next month. Right before Christmas I assume. Which will naturally delay anything being done till about the anniversary of his 1st year in office [if then]. And frankly, I wouldn’t be surprised if we were still waiting on an Afghanistan decision then as well.

~McQ

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Unemployment Hits 10.2% – “Stimulus” Not Stimulating

As President Barack Obama said on Feb. 9 when touting the “stimulus”: “The biggest measure of success is whether we stop contracting and shedding jobs, and we start growing again.”

Well, guess what?  Despite all the happy talk about the end of the recession, unemployment hit 10.2% today.  And, as Dale and others have said constantly, if we were computing it like we did in the ’70s, it would be at 17+%.

So taking the President at his own word, something it seems this administration would prefer everyone not do, it would appears the “stimulus” is still chasing success.

That’s because despite his protestations to the contrary, the the “stimulus” was one, giant earmark.  And it is not having the desired effect despite the bogus “jobs created and saved” numbers.

In fact, the reality of the situation is not at all good as the BLS noted in their press release today:

The number of unemployed persons increased by 558,000 to 15.7 million. The unemployment rate rose by 0.4 percentage point to 10.2 percent, the highest rate since April 1983. Since the start of the recession in December 2007, the number of unemployed persons has risen by 8.2 million, and the unemployment rate has grown by 5.3 percentage points.

And as for those “shovel ready projects” the “stimulus” was supposed to target?

The unemployment rate for the construction field keeps mocking those “shovel-ready” promises: Another 62,000 jobs in construction lost last month, with the average at 67,000 jobs lost per month for the last six months.

The solution? Watch for it – a second “stimulus”, something Paul Krugman has been whining about for months. Any guess what it would look like if it happened? Well the fact that this “stimulus” was used to track radioactive rabbit feces and subsidize golf cart purchases should give you a hint.

By the way, where is “Sheriff Joe” with his policing of the “stimulus” money and calling out those who are wasting it? Overwhelmed by the job, I guess.

Finally there is the economy killing legislation – health care which is front loaded with taxes and cap-and-trade which will raise the cost and price of everything – which the Democrats are determined to pass.  Yup – they’ve got a real handle on this, don’t they?

~McQ

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Cracks in the Edifice

For the most part, both the Fed and the Obama Administration have been publicly confident of a number of things. They’ve assured us that the bailouts and stimulus spending, along with the great monetary expansion we’ve had since last October, were necessary to stave off economic collapse.  They’ve also assured us that they have an end game for unwinding these policies when necessary.

But, Federal Reserve Bank of St. Louis President James Bullard is now warning that the negative results of the monetary expansion imposes more risk of inflation than generally believed.

I am concerned about a popular narrative in use today … that the output gap must be large since the recession is so severe … [and] any medium-term inflation threat is negligible, even in the face of extraordinarily accommodative monetary policy. I think this narrative overplays the output-gap story.

Take away Pres. Bullard’s Fed-speak, and what you have is a Federal Reserve bank president warning that the Fed’s accomodative policy runs a very real risk inflation when the economy picks up.  Naturally, to fight this ionflation, the Fed will need to raise interest rates.  With a doubling of the monetary base in the past year, that implies the possibility for raising rates quite substantially, which could strangle any nascent economic recovery in the cradle.

So, while Pres. Bullard also says that moderate economic growth for the end of the year is possible, we probably shouldn’t get our hopes up for a while.

Meanwhile, all of the extra dollars floating out there, combined with extremely large federal budget deficits for the next several years, is having an effect on the dollar.  Not only has the number of dollars vastly expanded, the deficits require greatly increased bond sales, which encumber the federal government with a long-term debt obligation that will be harder and harder to meet.  This is making the dollar…unattractive to heathen foreigners.  Not only in terms of dollar-denominated investments, but also in making the dollar fundamentally unattractive as  the world’s reserve currency. The rumblings about dumping dollar continue.

[T]he United Nations itself last week called for a new global reserve currency to end dollar supremacy, which had allowed the United States the “privilege” of building up a huge trade deficit.

UN undersecretary-general for economic and social affairs, Sha Zukang, said “important progress in managing imbalances can be made by reducing the (dollar) reserve currency country’s ‘privilege’ to run external deficits in order to provide international liquidity.”

Zukang was speaking at the annual meetings of the International Monetary Fund and World Bank, whose President Robert Zoellick recently warned that the United States should not “take for granted” the dollar’s role as preeminent global reserve currency.

You cannot simultaneously have your currency act as the global reserve currency while deflating the currency to uselessness by using foreign investment in dollars to maintain huge current account deficits.  The foreigners may talk funny, and have quaint ways, but they’re not big enough hayseeds to recognize who ultimately gets the short end of that deal if it continues.

Still, our government’s response has been heartening.

Following the summit, US Treasury Secretary Timothy Geithner repeated Washington’s commitment to a strong dollar.

At this point, I suspect that the international financial community takes this commitment as seriously as the attendees of the local junior college take my commitment to have sex with barely legal teen girls.  Actually, my commitment probably has a better chance of coming to fruition, since the international financial community doesn’t have “daddy issues”.

Meanwhile,  all of the teachers, cops, firemen, DMV workers, etc., who thought taking a relatively low-paying government job now in return for really good retirement benefits, may need to rethink that strategy.

The upheaval on Wall Street has deluged public pension systems with losses that government officials and consultants increasingly say are insurmountable unless pension managers fundamentally rethink how they pay out benefits or make money or both.

Within 15 years, public systems on average will have less half the money they need to pay pension benefits, according to an analysis by Pricewaterhouse Coopers. Other analysts say funding levels could hit that low within a decade.

After losing about $1 trillion in the markets, state and local governments are facing a devil’s choice: Either slash retirement benefits or pursue high-return investments that come with high risk.

In other words, start stocking up on Alpo for those hearty retirement meals, or hope that the pension fund’s investment in fur-bearing trout farms come through big-time.

But it’s not just government workers who may be looking at a bleak future.  The government’s actions since last October are also having unintended consequences on the domestic economy that affects all of us–although I should point out that these unintended consequences were entirely predictable.

The Fed’s policy of essentially free money means that household savers get no return at all on CD’s, T-bills, Money Markets, etc., while speculators can borrow money at no cost, and toss them at any speculative investment that promises any return at all.  So traditional savings are being gutted.

Excessive government borrowing is sucking the air out of the private credit markets.  While goverment borrowing is proceeding at a $1.9 trillion annual rate, private credit is collapsing.

Last year, banks provided new credit at the annual pace of $472.4 billion in the first quarter and $86.7 billion in the second. This year, on a net basis, they’re not providing any credit whatsoever. In fact, they’re actually liquidating loans at the rate of $857.2 billion in the first quarter and $931.3 billion in the second.

Ditto for mortgages. Last year, mortgages were being created at the annual clip of $522.5 billion and $124 billion in the first and second quarters, respectively. This year, they’ve been liquidated at an annual pace of $39.3 billion in the first quarter and $239.5 billion in the second.

This lack of credit means that businesses have been unable to expand or hire–or even maintain their workforce.  As a result, 7.2 million jobs have been lost in the last 21 months, compared to the 2.7 million jobs lost in the 30 months of the last recession.  The official unemployment rate of 9.8% hides the effect of discouraged job seekers, or the under-employed, which means the actual unemployment rate, as it was calculated prior to 1973 is 17%.  Shadow Government Statistics places the actual unemployment rate at an even worse 21%.

And now, after all the unintended consequences of our past actions, some in Congress are now calling for Stimulus II.  Apparently, Stimulus I did such a bang-up job, that they want to double down on two sixes.

Hop.  Hop.  Hop.

the United Nations itself last week called for a new global reserve currency to end dollar supremacy, which had allowed the United States the “privilege” of building up a huge trade deficit.

UN undersecretary-general for economic and social affairs, Sha Zukang, said “important progress in managing imbalances can be made by reducing the (dollar) reserve currency country’s ‘privilege’ to run external deficits in order to provide international liquidity.”

Zukang was speaking at the annual meetings of the International Monetary Fund and World Bank, whose President Robert Zoellick recently warned that the United States should not “take for granted” the dollar’s role as preeminent global reserve currency.

Jobless Rate Key To 2010 Results?

Neil King thinks the unemployment rate will be on of the keys to outcomes in 2010.

“Unemployment is the leading economic indicator when it comes to politics,” said Democratic pollster Peter Hart. “Anytime unemployment hits double digits, it’s hard to see the party in control having a good election year.”

Economists generally predict that the number of people out of work will continue to inch up next year, even if the economy begins to rebound. Most see the jobless rate peaking at around 10.5% in the summer. Former Fed Chairman Alan Greenspan said Sunday that his own hunch was that the economy would turn around over coming months, but that unemployment would “penetrate the 10% barrier and stay there for a while before we start down.”

As Dale has noted, if we were calculating unemployment as we did in 1974, we’d be in the 17% area. That means a lot of voters are hurting and the one place they can voice their displeasure is at the ballot box. Additionally, by 2010 the “we inherited this” gig will have been up for some time. Democrats in Congress have been in charge for almost 4 years now. Politically that means this is their economy. The last time unemployment was over 10% during a midterm, the Republicans lost 26 seats in the House.

Then there’s the stimulus which was touted to be the answer to unemployment. The current administration promised that passing it would keep unemployment down in the area of 8%. But after its passage it didn’t even slow the growth of unemployment, a fact Republicans are sure to point out in the coming year.

As it turns out, Democrats may be happy to just lose 26 seats. Republicans are targeting 54 vulnerable Democrats, 49 of which come from districts John McCain carried in 2008.

Add in Afghanistan, health care, cap-and-trade and the huge expansion of government and the fact that Congress is deeply unpopular, losses in the 40s might not be as out of the question as one might think (think of an energized Republican base and a dispirited Democratic base with independents leaning to the GOP side).

~McQ

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Phantom Jobs Support Fake Recovery?

John Crudele alerts us to a GIGO (garbage-in-garbage-out) statistic the Labor Department uses and has used for a long time that provides erroneous data.  Bad as it is in normal times, it is even worse in bad economic times:

In 11 of the 12 months, the government adds massive numbers of jobs — sometimes more than 100,000 — that it thinks, but can’t prove, exist.

This is because the Labor Department uses something called the birth/death model, which assumes that no matter how bad the economy is, there are itty-bitty, newly-formed companies — which can’t be reached by government surveyors — that are creating jobs.

So it pumps up its statistics with unconfirmed jobs created which hides the real extent of the jobs lost. And, of course, as Crudele points out, the stats are iffy in a good economy, but reliance on them in this sort of an economy is simply a travesty.

Even the Labor Department has now admitted that:

Right after Friday’s report came out, Bloomberg News called Chris Manning, the national benchmark branch chief at the Labor Department’s Bureau of Labor Statistics, and asked about the 34,000 probably non-existent jobs.

“In this period of steep job losses, the birth/death model didn’t work as well as it usually does,” Manning told Bloomberg. “To the extent that there was an overstatement in the birth/death model, that is likely to still be there.” No freakin’ kidding! This year alone, this model has added over 700,000 jobs that don’t exist to the government’s count.

The Labor Department is not only still using this model, but it nearly doubled the number of phantom jobs for this September compared with the same month last year.

So if you’re wondering how distinguished economists can get things so wrong, this provides a peek. After all, these are the statistics they’re stuck using. Phantom job creation stats based on an absurd assumption that says something’s happening that can’t be confirmed and, by the way, it continues to happen at the same rate even in the worst of financial times. Does that conform with your experience in the real world?

Mine either. Keep that all in mind when you hear the “experts” tell you that according to the latest unemployment stats, it just isn’t as bad as you might think.

[HT: Mark W.]

~McQ

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The Recession is Racist (Updated)

Just thought you should know:

While unemployment rose steadily for white New Yorkers from the first quarter of 2008 through the first three months of this year, the number of unemployed blacks in the city rose four times as fast, according to a report to be released on Monday by the city comptroller’s office. By the end of March, there were about 80,000 more unemployed blacks than whites, according to the report, even though there are roughly 1.5 million more whites than blacks here.

Across the nation, the surge in unemployment has cut across all demographic lines, and the gap between blacks and whites has risen, but at a much slower rate than in New York.

Economists said they were not certain why so many more blacks were losing their jobs in New York, especially when a large share of the layoffs in the city have been in fields where they are not well represented, like finance and professional services. But in those sectors, the economists suggested that blacks may have had less seniority when layoffs occurred. And black workers hold an outsize share of the jobs in retailing and other service industries that have been shrinking as consumers curtail their spending.

Hmm, so maybe it’s just NYC that’s racist?

“Low-wage workers and workers who lack skills are really getting hit hard,” he said. “These are the workers who are sort of fungible. They lose their jobs very quickly, particularly in retail, the people who move boxes and do unskilled work. There are large numbers of African-Americans in that sector.”

Manufacturing, which has shed more jobs than any other sector of the city’s economy, had become a mainstay for black workers, Mr. Jones said. Government jobs had also become a prime source of solid, stable work for many blacks in the city, he added. But lately there have been cutbacks there, too, as falling tax revenue has forced the paring back of budgets.

So it’s those who hire unskilled workers who are racist? This theme is confusing.

Still, Mr. Parrott’s analysis painted a stark picture of how uneven the effects have been for whites, blacks and members of other minorities. His figures show that whites gained about 130,000 jobs in the year that ended April 30 over the previous 12 months, but blacks, Hispanics and Asians all lost jobs during that period. Employment fell by about 17,000 jobs for blacks, 26,000 jobs for Hispanics and 18,000 for Asians and other ethnic groups, the data show.

“That’s a black-and-white employment picture,” Mr. Parrott said. “It’s like night and day over the 12 months. “There’s a real racial shift taking place in the city’s labor market in the past year.”

Okay, I’ve got it now. It’s white New Yorkers who are racist. Or maybe its the high-skilled labor market that’s racist? Again, I’m not sure.

But the article seems to imply pretty strongly that racism is at the bottom of this problem. Otherwise, why not mention how many of the unemployed are men, or of prime-age, or well-educated? Heck, why not mention that of the 108,000 [139,100 newly] unemployed workers in NYC [over the 12 month period between April 2008 and 2009], 61,000 [92,000] (or a little more than 56% [66%]) are white (which really makes you wonder where the 130,000 jobs figure came from)?* Obviously, the story is intended to tell us that somebody is being racist, and that’s why the “black-white gap in joblessness” is being discussed at all.

Welcome to post-racial Obamaland. If you don’t know whose fault it is, then it’s probably yours, racist.

UPDATE: Those numbers (in the sentence marked above with the *) were really bothering me. I went back and looked at the Bureau of Labor Statistics figures for New York City’s unemployment and discovered that the NYT article is way off. The number of jobs lost between April 2008 and April 2009 was 139,100, of which (according to the article) 17,000 were lost by blacks, 26,000 were lost by Hispanics, and 18,000 were lost by Asians and other races. Somehow or another, Mr. Parrott, who the article cites for the numbers, came up with 130,000 jobs gained by whites in this period. Of course, that makes absolutely no sense because, if it were true, then there would have been an increase in employment during that period, and the unemployment rate would have fallen, not skyrocketed. Instead, 139,100 people became unemployed, only 47,000 of whom were non-white. Ergo, instead of whites gaining 130,000 jobs, they lost 92,000.

There are other problems with the article as well, some of which you can discover by reading the NYT (in fact, the stories are written by the same person). For example, the story above cites low-wage, manufacturing and government workers as hardest hit, but last month the picture was just the opposite (emphasis added):

In the private work force, the weakness in May was concentrated in the fields of communications media, advertising and other information services, as well as in finance and education, according to James Brown, an analyst with the state’s Labor Department.

Those losses offset employment gains in tourism-related businesses and construction, Mr. Brown said. He said that aggressive price-cutting by hotels had kept tourists visiting and saved jobs. Construction benefited from the flow of federal stimulus funds, he added.

The latest numbers, Mr. Brown said, illustrate that New York’s economy is still contracting, despite recent fluctuations in the city’s unemployment rate, which was 8 percent in April.

“Although the unemployment rate actually dipped slightly in three of the last five months, the trend is still strongly upward,” he said. “Despite some positive notes, the city’s job market is still weak and the weakest areas — financial activities and professional and business services — will not resume growth until after the national economy improves.”

I’m sure there’s other stuff that’s wrong as well, but it doesn’t change the fact that you are a racist.