I’m in a series of meetings today so I’m unlikely to get any serious blogging done.
You guys talk among yourselves.
Suggestions: “flip-flop” is now “evolution”? Really?
And, dealing with just the politics of Obama’s gay marriage announcement, guess what we won’t be talking about again today?
This week, Bruce and Dale talk about what the Trayvon martin case says about the media.
The direct link to the podcast can be found here.
As a reminder, if you are an iTunes user, don’t forget to subscribe to the QandO podcast, Observations, through iTunes. For those of you who don’t have iTunes, you can subscribe at Podcast Alley. And, of course, for you newsreader subscriber types, our podcast RSS Feed is here. For podcasts from 2005 to 2010, they can be accessed through the RSS Archive Feed.
And all of it brought to you in charts via Zero Hedge.
The "official" unemployment rate is 8.2%. Zero Hedge claims the real unemployment rate is 14.8%.
The reality in two charts. Chart 1:
In case you’re missing the point, 88 million are not participating. That is a whole lot less than when this started. As Zero Hedge asks ‘must be that everyone is able to retire’. Uh, yeah, right. That chart and number provides context for the next chart.
Lets go to Chart 2. This is the chart that tells the tale and kills the myth:
This is the chart that the GOP nominee ought to have permanently hanging at every single event he holds during this election season. This is indicative of the real unemployment picture and it isn’t pretty.
Certainly, many Baby Boomers are choosing to retire, but as I said on the podcast, a) we’re just getting into Baby Boomer retirements and b) no one would dare argue that everyone has the ability to retire right now. So there is a serious discrepancy between the official unemployment rate and the real unemployment rate. That discrepancy is evident with these charts and destroys the myth of an improving unemployment picture.
James Pethokoukis provides us with the quote (a little context when you hear all the “sunshine and roses” employment reports):
[T]o restore the job market to the state it was in back in 2007, before the recession, would require the creation of 14.8 million jobs in today’s terms, a daunting task to say the least.
FRED supplies the graphic:
This chart will blow you away (via James Pethakoukis):
The NY Fed explains:
The first figure shows how these three labor market variables evolved over the four post-1973 business cycles (excluding the short 1980 cycle), along with developments in the Great Recession and current recovery. We start at the lowest level of the unemployment rate before the recession and then follow the changes for three years after the rate reaches its maximum level. For the current expansion, the maximum unemployment rate occurred in October 2009.
The employment-to-population ratio displays a classic V-shape recession and recovery pattern in the 1970s and 1980s. In the recession and recovery of the early 1990s, however, the employment-to-population ratio instead displays a U shape, only returning to its pre-recession level three years after the peak in the unemployment rate. In the recession and recovery of the early 2000s, neither the participation rate nor the employment-to-population ratio returns to its previous level, so we see an incomplete U-shape pattern.
In the most recent cycle, the employment-to-population ratio traces out an L shape, but the unemployment rate falls because the participation rate declines substantially (a much more gradual decline was expected by many given the aging of the baby boomers); in other words, a larger share of the population is out of the labor force rather than participating and being unemployed.
We’ve seen a lot of happy talk about how well the economy is doing now. Most of that comes from the media which has about as much of a grasp on the economy and how it works as does the current occupant of the White House.
A look at those four recessionary cycles gives context to the depth of the one we’re currently battling. If you look closely at the part of the chart depicting our current situation, you realize that while we’ve seemingly bottomed out, the employment-to-population ratio is not rising. And that, of course, is because of the horrendous drop in the labor force participation.
It points out two things – one that the “official” unemployment rate should be taken with a grain of salt. And two, that the stimulus had little apparent effect (sorry, but I don’t buy the “it could have been worse” argument. We have no way of knowing that) if the purpose was to shorten the recessionary cycle and keeping employment below 8%. It did neither of those things.
Finally, no matter what numbers and happy talk the media and administration throw out there, unemployment and the state of the economy are a very personal things to voters. Those who remain unemployed certainly aren’t seeing an “improvement” in the economy from where they sit. And it is from there they’ll make their decision as to who they’ll vote for in November. All the media smoke and mirrors about the improving economy aren’t likely to sway those who remain unemployed or are underemployed to see it their way. They’ll, instead, vote the reality of their situation and are unlikely to vote for the candidate who they feel has done little to ameliorate their situation.
Over the last several months, we’ve seen moderate gains in non-farm payroll jobs, with the rate of job creation running at about 200,000 jobs a month. That’s seems good, as does the continuing drop in initial claims for unemployment to around the 350,000 level weekly.
The thing is, how real is this job creation, in an environment where the past year showed a rate of GDP growth of 1.8%, and the most optimistic forecasts for this year indicate a 2.5% rate of GDP growth? Those rates of growth are significantly below the long-term trend rate of growth for the US economy, which is between 3% and 3,5% per year. How is employment increasing when GDP growth is so slow?
Well, the answer is, it may not be. Take a look at the charts below, They are taken from the historical A tables of the Bureau of Labor Statistics’ (BLS) household survey. This is the survey where households provide employment data.
The first chart shows the number of people in the Household survey who’ve declared themselves to be employed since January of 2002.
That does indeed indicate a moderate rate of employment growth since January of 2010. So far, so good.
The next chart, however, shows those who are employed as a percentage of the civilian, non-institutional, adult population.
This provides a far more negative picture of employment. Essentially, the percentage of the population that is employed has crashed, and the percentage of employed was lower in 2011 than it was in 2010. As a percentage of the adult population, peak employment has declined every year since 2007.
Essentially, a additional 4% of the adult population is now jobless, compared to 2007, and that jobless percentage has been increasing, not decreasing, over the last two years, despite mild declines in the official unemployment rate.
But … and you knew there had to be one… what does that mean in relation to the job losses we’ve suffered during this recession?
In the past, the number for this month would have been a good number because it would have reflected a maintenance level of job creation. Essentially the number of jobs created kept pace with the expansion of the labor market as new workers entered it.
But we’ve lost millions and millions of jobs in the past 39 months. So what is it going to take just to get back to even (i.e. where we were prior to the recession)?
Here’s an infographic to graphically present the problem:
To actually climb out of the unemployment hole that the recession dug, we need to see 755,000 jobs a month for 7 months to bring us back to pre-recession job levels. Why 7 months? Heh … well, you figure it out.
UPDATE: According to James Pethakoukis, the unemployment rate also lacks validity. He makes a point Dale has made any number of times:
If the size of the U.S. labor force as a share of the total population was the same as it was when Barack Obama took office—65.7% then vs. 63.9% today—the U-3 unemployment rate would be 10.8%.
A good job report this month drops the “official” unemployment rate to 8.3%. That, of course, will be touted as significant progress and, on one level, it is. The number of jobs created is above the maintenance level. That means a real net gain.
While the job creation is “well above expectations”, there’s another record that masks the real unemployment number.
Namely 1.2 million workers (another record) fell out of the labor force. That’s one reason the official rate looks good.
And, probably the most important number to be considered – the labor participation rate – fell to 63.7% which is a 30 year low and reflects the loss of those 1.2 million workers from the work force. Neither of those numbers are good.
That said, the report on the numbers of jobs created is a good report and may signal some growth. It is, for a change, above the maintenance level of jobs. But you have to keep in mind that in overall terms, and despite the official numbers, the job situation still has a very, very long way to go.
Speaking of the record compiled under the Obama administration, the CBO provides plenty of ammo for the GOP:
The Congressional Budget Office on Tuesday predicted the deficit will rise to $1.08 trillion in 2012.
The office also projected the jobless rate would rise to 8.9 percent by the end of 2012, and to 9.2 percent in 2013.
That’s because it has revised its previous estimate as the GDP growth numbers for last year were revised down.
Additionally, and reading between the lines, it also means that the administration and Congress has yet to even begin to get a handle on the main problem – spending.
Of course part of that stands to reason when you take into consideration the Democratic controlled Senate hasn’t passed a budget in over 1,000 days.
The Hill, ever the master of understatement, gives you a peek at what should be obvious:
A rising deficit and unemployment rate would hamper President Obama’s reelection effort, which in recent weeks has seemed to be on stronger footing.
“Hamper"?” It should put it in the crapper. Or so you would think. But then there’s the GOP primary going on, huh?
CBO Director Doug Elmendorf told reporters that Congress will have to make important choices this year regarding the supercommittee trigger and tax policy that will have huge effects on the deficit.
While unable to recommend choices, Elmendorf said that addressing the deficit sooner rather than later is easier.
The deficit was $1.4 trillion in 2009, $1.3 trillion in 2010 and $1.3 trillion in 2011. The largest deficit recorded before that was $458 billion in 2008.
Well, of course addressing the deficit sooner rather than later is a lot easier. Haven’t we been saying that for years? Decades?
Anyone think it will be addressed in this next year? Consider what the CBO recommends:
The deficit will be much higher if Congress takes several actions that many expect.
If the Bush tax rates are extended, for example, the deficit would rise.
It would rise if Congress patches the Alternative Minimum Tax, which lawmakers have routinely done to prevent higher taxes from being imposed on middle class taxpayers.
It would also rise if Congress continues to pass the “doc fix” that prevents a cut to Medicare payments to doctors, something that Congress has done on a near-annual basis.
Finally, if Congress does not follow through on cuts mandated by the failure of the supercommittee, the deficit will grow. Lawmakers are already talking about canceling scheduled cuts to the Pentagon’s budget.
So, let’s see – raise taxes, lower taxes, subsidize and cut spending. Or is that last one, cut projected spending?
The “doc fix”, unless passed, will see Doctors leave Medicare in droves. I certainly would if I were in their shoes. Any guesses how that turns out?
And while the Democrats only want the “rich” to pay higher taxes, if the current tax rates (also known as the “Bush tax cut”) are allowed to revert to their prior percentages, taxes will increase 30% on everyone by 2014. Catch 22?
The amount of money the federal government takes out of the U.S. economy in taxes will increase by more than 30 percent between 2012 and 2014, according to the Budget and Economic Outlook published today by the CBO.
At the same time, according to CBO, the economy will remain sluggish, partly because of higher taxes.
You don’t say? Stupid if you do, damned if you don’t? Nice position we’ve gotten ourselves in, no?
And finally, sequestration will “cut” 10% across the board, to include defense which has already taken that sort of a cut. Dangerous.
However, for the rest of the government, I expect the usual accounting tricks with no real cuts in spending if sequestration is enacted.
As for taxes increasing, the increase is fairly dramatic at a time the economy can’t absorb such increases:
The anticipated percentage increase in federal tax revenue is not only large when calculated in dollar terms but also when calculated as a share of GDP. The jump from 15.4 percent of GDP in fiscal 2011 to 20.0 percent of GDP in fiscal 2014 equals an increase of 29.8 percent. The jump from 16.3 percent in fiscal 2012 to 20.0 percent in fiscal 2014 equals an increase over two years of 22.7 percent.
Federal tax revenues have averaged “about 18 percent of GDP for the past 40 years,” according to CBO. So, in the next two years federal tax revenues will rise from a level that is below the modern historical average to a level that is above it.
Again I’m reduced to saying “what a freakin’ mess”. When I say over and over again, “we’ve been ill served by our political class for decades”, it is this to which I point.
Yes, all of this and the never mentioned additional 200 plus trillion in unfunded future mandated liabilities that have been amassed.
Context is one of those tricky words for some. Because, when applied, it tends to trip up their attempts to shade news a certain way. Without it, they’re much more able to do their shading than when context is added to their formulation.
Take the unemployment numbers – the “official” unemployment numbers. We’re supposed to believe that everything is getting better because that number has come down from 10% to its current “official” level of 8.5%.
But when one digs into that number, it becomes apparent that one can only get to 8.5% if one is willing to write off over a million American workers who’ve somehow “vanished” from the labor force.
Or in other words, in context, with those workers being added back in as they should be, our unemployment rate is much higher than 8.5%. Dale has explained this many times. I’ve pointed it out a few times. Investors Business Daily does it this time:
In the 30 months since the recession officially ended, nearly 1 million people have dropped out of the labor force — they aren’t working, and they aren’t looking — according to data from Labor’s Bureau of Labor Statistics. In the past two months, the labor force shrank by 170,000.
This is virtually unprecedented in past economic recoveries, at least since the BLS has kept detailed records. In the past nine recoveries, the labor force had climbed an average 3.5 million by this point, according to an IBD analysis of the BLS data.
"Given weak job prospects, many would-be workers dropped out of (or never entered) the labor force," noted Heidi Shierholz of the Economic Policy Institute in her analysis of the BLS jobs report issued last Friday. "That reduces the measured unemployment rate but does not represent real improvement."
According to the BLS, the "labor force participation rate" — the ratio of the number of people either working or looking for work compared with the entire working-age population — is now 64%, down from 65.7% when the recession ended in June 2009. That’s the lowest level since women began entering the workforce in far greater numbers several decades ago.
That “labor force participation rate” hasn’t changed significantly. In fact, given our expanding population, it has probably remained at least the same. What the “official” number does is ignore the missing million plus workers and thereby misrepresent the true level of unemployment in this country. That official number also hides the real problem that IBD’s chart shows us – something unprecedented in past recoveries:
Labor force growth, as you might imagine, is one of the indicators of a recovering economy. Instead we seem to be in the middle of fooling ourselves that such a recovery is happening by viewing a falling “official” unemployment number as an indictor of progress in that area. I’m not sure how one can make that argument – in context, as provided by this chart.
IBD goes on to outline what this all means in the long run:
Not only does the shrunken labor force mask the real size of the unemployment problem in the country — since only those actively looking for work are counted as unemployed — it likely means that economic growth will be subpar going forward.
The weak job market has also helped depress wages. Real median annual household income has dropped 5.1% since the recession ended, more than the 3.2% decline during the recession itself — according to a new Sentier Research report.
The smaller labor force is just one of the problems with the current unemployment number. The other is that the jobs being created aren’t keeping pace with population growth. Since June 2009, the economy has added 1.4 million jobs, which is below the more than 2 million needed to keep up with population growth and far below the gains experienced at the same point in the previous 10 recoveries — which saw job gains average more than 4 million.
So, what has happened? Well there are all sorts of explanations being bandied about – Baby Boomers choosing retirement instead of seeking work, etc. But the fact remains, as IBD points out, “the labor force had been climbing until Obama took office. In fact, it peaked in May 2009, the month before the recession officially ended.”
That sort of dampens the “Baby Boomer retirement” explanation and leaves us again searching for an answer.
The whole point of this post, however, isn’t so much wrapped up in the answer, but the context of the problem. Or said another way, you’re being led down the primrose path with the “official” unemployment number and here’s why.
Context. A dirty word to those who would prefer to feed you false sunshine via their “official” numbers. But when you look at their numbers remember that you’re mostly looking at contextless nonsense.
Oh, and if you’re not depressed enough:
The Economic Policy Institute calculates that when you add the number of jobs lost in the recession and the growth in the working age population over the past few years, the "jobs deficit," as EPI calls it, "remains well over 10 million."
There’s also the problem of people who want full-time work not being able to find it. The BLS offers a different unemployment measure that counts not only those currently looking for a job, but those who’ve given up looking, as well as those who are underemployed because of the soft job market.
That measure has unemployment at a whopping 15.2%.
But don’t look for this administration to ever tell you that.