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Goldman Provides An Answer To Albert Edwards' Household Employment Survey Concerns
If there is one thing Goldman's Andrew Tilton did today, it was to read the earlier points on payrolls by Albert Edwards. Goldman provides a retort, which is in keeping with the party line, yet which does share some useful NFP information.
Why Does the Household Employment Survey Look So Weak?
Andrew Tilton, Goldman Sachs
The biggest mystery in recent employment figures has been the dramatic underperformance of the household survey of employment. (For readers unfamiliar with the distinction between the two surveys, please see www.bls.gov/web/ces_cps_trends.pdf or our Understanding US Economic Statistics booklet.) Over the past six months, the payroll survey has lost an average of 134,000 jobs per month while the household survey has lost an average 374,000 jobs. Yet, because of very large declines in the labor force, the unemployment rate has “only” risen one-half a percentage point over this period – bad, but much less than the employment loss would suggest. So there is really a double mystery—why is household employment declining so much more quickly, and why are so many people giving up looking for work?
The table below sheds some light on the first question. The first three rows show the payroll survey, the household survey, and the average difference of 240,000 over the past six months. Over the past year (rightmost column), the difference has been somewhat smaller, but still more than 100,000 jobs per month.

However, we need to make two adjustments for a fairer comparison. First, payrolls are about to be revised down significantly. The Labor Department’s preliminary estimate is a downward revision of 824,000 to the level of payrolls in March 2009. Since all of this represents underperformance in the time period since the March 2008 benchmark, it implies that the average monthly drop in that interval was about 69,000 jobs steeper than originally estimated. If we assume as a baseline that this correction is extrapolated forward linearly—note that the actual procedure could well result in a bigger or smaller correction—we would see correspondingly weaker numbers for more recent payroll reports as well (line 4). Second, we need to adjust household data to the payroll definition (line 5) for an “apples to apples” comparison. Doing this does relatively little to the gap over the past six months (it’s still 224,000 jobs per month), but the relatively small gap between the two over the past year (39,000 per month) suggests that much of the recent underperformance is a correction of earlier outperformance. The remainder, as we have discussed previously, we suspect is due to the underperformance of small and mid-sized employers, which the household survey may capture better in real time. (The lag for the payroll survey to capture this underperformance also may help explain the large downward revision.) So, the employment discrepancy looks less mysterious with closer analysis.
What about the discrepancy in labor force participation? Over the past year, the share of Americans participating in the labor force (either employed or actively looking for work) has fallen by 1.2 percentage points to 64.6%, the largest one-year drop on record. As a result, the number of people classified as “not in the labor force” has grown by 3½ million. If these people began looking activity for work, the unemployment rate could rise sharply.
We believe the best explanation for this drop in the labor force is a shift by many younger workers to get additional education or training. Three points in evidence:
1. The drop in participation is particularly evident among the young… The table below shows the drop in labor force participation over the past year by age group, both on an absolute basis and relative to the trend for that group in the years before the recession.

2. …and the less educated. Relative to pre-recession trends, the biggest drop in labor force participation has come among people who do not have a high school diploma. The smallest drop was among those with a college degree.
3. Most of those leaving the labor force say they do not currently want a job. While the category “not in the labor force” has grown by 3.5 million over the past year, only about one-sixth of this increase has come in the “marginally attached” category of people who want a job and have looked for one in the last year. The vast majority are not looking for a job at present.
While not definitive, these facts are consistent with an explanation that lots of younger people see limited employment prospects in the near term, have decided to get additional schooling or training, and are therefore not currently looking for work. Anecdotally, enrollment in postsecondary education has increased, although at the time of this publication we do not have comprehensive figures for 2009-2010 academic year enrollment. Insofar as this explanation is correct, many recent “labor force dropouts” are quite likely to look for work again at some point in the next few years, as opposed to retiring or dropping out permanently.
Even accounting for demographic shifts in the labor force, the recent decline in the labor force participation rate is at the extreme end of prior recessions. We therefore suspect that the participation rate will stabilize over the coming year, implying that outright job growth of more than 100,000 per month will soon be needed to keep the unemployment rate from rising further.
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In other words, "Abandon all hope ye who enter here."
And Ben made 45B for us last year. Yipie!!!
Yes, I saw that. Good thing they didn't adjust for the "currency effect". Ben's head would be lopped off in the town square should that one become obvious.
game over man game over
in addition to 2. above, it seems likely to this poster that the mandated increases in minimum wages must also have forced employers to hire less young people...... another one of those "unintended consequences"
Unfortunately, there's some additional hidden concerns at hand...
All these younger demographics presumably seeking new training/education have to pay for that somehow. So what's their answer? Debt.
The "good" news is that stimulus is going to help restructure the US economy in the form of student loans (albeit tiny), but that just makes the fall harder for these people when leave school and they still can't find employment. And then you've got the double-wammy of raising the labor participation rate at that same time.
100 000 per month hey?... hours of deriving laughter.
#3 Most of those leaving the labor force say they do not currently want a job.
If I was in my twenties and could get ninety six weeks of government unemployment money, I would not want a job either. All I would want to do is surf, get high and chase women.
why take a job for less,if there werw any jobs out there?
there cause it ,let them live with it!
HOMELESS AND HUNGRY PEOPLE RIOT
DEMS CAN'T HAVE THAT
JOBS BILL 2
30 MORE WEEKS UI
400,000 sing up for new clams every week,thats the numbers you watch,you think states are broke now,wait till they have to dive income tax refunds!
How is the adjustment for part time work made? Is it possible that the payroll survey counts all jobs, including part time or temporary, whereas the household survey just calculates numbers of people in employment?
Great research note from SocGen's Dylan Grice today: "A global fiasco is brewing in Japan"
This is nice thinking out of the box.
http://www.sgresearch.socgen.com/publication/en/B58F840D9AE2E017C12576A9...
Thanks for the link. One wonders whether the new government in Japan will find to courage to act in Japan's best interests going forward. So far, it doesn't seem so.
How does the increase in military enlistment affect these numbers - if at all?
I assume undocumented worker payrolls are declining as well. A landlord acquaintance of mine told me a house he had rented to 8 Hispanic men had only 5 residents by last July and was vacant by November. The men had gone back to Mexico because they couldn't find enough work to justify staying. Damn, even $3 hour labor can't find full time work and 8 wage earner households are failing.
This Goldman Sachs "analysis" can be condensed down to this: it's mostly young people that are out of work and they are mostly not very well educated, so ermmm.....they must have all gone back to college! The vacuity of this argument does my head in, but the fact that some people appear to be accepting it in the absence of a single shred of evidence pointing to increased college/training enrolments is even more scary.
Point #1 the significant change is in the 20-24 demographic, their explanation is based on anecdotal (their word) evidence as they do not have post secondary enrollment data. Another explanation could be that said 20-24 year old is living in the parents basement and commenting on blogs all day.
Point #2 less educated = unskilled = my job moved to China.
Point #3 is spin. There is a meaningful difference between not wanting and not looking, the latter being the answer to the question.
3. Most of those leaving the labor force say they do not currently want a job.
Totally agree--lets blame the person that lost their job because they dont want a job---WOW--these guys are the poison in the system--as a side note I am sure that the shadow inventory of small contractors(which is larger than most people think) is not included in the equation. I had a garage sale last weekend and I am NOW EMPLOYED--what a shit sandwich.
Tar and Feather=growing industry
4. "Only the people who don't matter are losing their jobs."
Takeaway: There is going to be a crapload of people piling out of retraining programs looking for jobs in the spring and summer of 2010
We should have been able to infer this from the strength in educatin sector employment - everyone is trying to become a computer technician or CNA
Information is truly extraordinary, I am very interested to read this post..online schools | distance learning schools | campus based schools
So countless American youth are staying in school, piling up debt to get those BA, MBAs and the like so they can be unleashed back onto American as Walmart greeters? Sounds like a plan.
Talk about the ulimate kick the can ...
Not BA's, but beauticians, HVAC and the like - being exploited by the certificate mills...this stratum probably is not heavy on the kind of coursework required to get a degree.
Thanks for sharing this great article!
online degree programs | online high school programs
Since we are talking about Jobs, has anyone heard that Sams Club is closing 10 stores?? That is alot, and especially for Wal-mart.
funny you mention that...i'm in upstate NY and they are closing a Sam's Club in what has been the fastest growing area of this community. I was shocked to tell you the truth. It's a done deal, not rumors or anything like that. Sam's Club has confirmed it and 112 are losing jobs.
The explanation is perhaps weak at best. I especially liked the need to compare apples to apples but when done it makes no difference...so, the point is?
At any rate, these puff pieces intended on explaining away or calming fears really are just that...nothing more than attempted book builders. There's no reason to believe their explanation, they don't have the data to prove their theory, at least not yet.
Article sez:
"Anecdotally, enrollment in postsecondary education has increased, although at the time of this publication we do not have comprehensive figures for 2009-2010 academic year enrollment."
Reliance upon unsubstantiated anecdotes re post-secondary education is questionable. Data should be available at:
https://surveys.nces.ed.gov/ipeds/
GS employees have managed to brainwash themselves
Wait 'til the new health care tax adds, say, $5,000 per employee to small business payroll costs and see what happens to participation rates.
'We believe the best explanation for this drop in the labor force is a shift by many younger workers to get additional education or training. While not definitive, these facts are consistent with an explanation that lots of younger people see limited employment prospects in the near term, have decided to get additional schooling or training, and are therefore not currently looking for work.'
Absolute and utter nonsense.
Here is something from Northern Trust in January 2006 :
'The labor force participation rate has dropped each year in the 2000-2004 period and held virtually steady in 2005. This is an atypical event because during economic recoveries the participation rate rises as more people enter the labor force. There is no conclusive research explaining the reasons for the downward trend...tentative conclusions are that increased enrollment in school in the group aged 16-24 and women aged 25-34 dropping out of the labor force for child rearing are the new events explaining the drop in the participation rate. Additional research and time will help to sort out this issue. '
Additional research and time have uncovered nothing...
More folks in prison, more disability payments, less baby boomers ... not much in the way of a definitive explanation has been made as to why folks seem to keep on disappearing and never coming back (in aggregate and most especially if one considers population growth).A breakdown by month this century can be had from:
http://data.bls.gov/PDQ/servlet/SurveyOutputServlet?data_tool=latest_num...
Even during the Great Depression the labor force increased!
Where did you go Joe? A nation bids its' unemployed adieu ever since the Clinton administration disappeared 5 million to make the unemployment rate look better.
The Big Lie is always in plain sight.