Unemployment Falls to 9.7% (Did it Really?)

From The Daily Capitalist

The employment numbers for January 2010 came out today and the headline was that unemployment dropped from 10% to 9.7%. This is a significant event because we all want to see employment grow. My conclusion from reading the report from the Bureau of Labor Statistics is that it's very hard to tell if this increase in employment is real, a temporary bump from stimulus, or a fiction arising from assumptions used by the BLS.

There are two numbers to look at. First is the Household survey which is exactly what is says: 60,000 households report to the BLS and that report yielded the 9.7% number. The other statistic is the Establishment survey which polls private industry, and that report showed a 20,000 person decline in payrolls. These two ways of looking at unemployment often differ, but, as we are assured by the BLS, they tend to converge over the long term.

The increase of overall unemployment as a result of the change in the business birth-death model (see article) was figured into the mix and overall unemployment for the April 2008 to March 2009 increased by 902,000.

Areas of shrinking employment continue to be construction, transportation, and warehousing. The big increases in employment were in temporary services and retail trade. Also, growth in health services. While federal employment grew as a result of the hiring of Census workers, total actual government employment (federal, state, and local) declined by 8,000 workers.

Here are some of the more significant statistics from the BLS report:

• The number of unemployed persons decreased to 14.8 million, and the unemployment rate fell by 0.3 percentage point to 9.7 percent.
• The number of persons unemployed due to job loss decreased by 378,000 to 9.3 million
• Nonfarm payroll employment was essentially unchanged (-20,000)
• The number of long-term unemployed (those jobless for 27 weeks and over) continued to trend up in January, reaching 6.3 million.
• Since the start of the recession in December 2007, the number of long-term unemployed has risen by 5.0 million.
• The civilian labor force participation rate was little changed at 64.7 percent
• The number of persons who worked part time for economic reasons (sometimes referred to as involuntary part-time workers) fell from 9.2 to 8.3 million
• About 2.5 million persons were marginally attached to the labor force in January, an increase of 409,000 from a year earlier.
• Employment in manufacturing was little changed in January (11,000)
• The average workweek for all employees on private nonfarm payrolls was up by 0.1 hour to 33.9 hours in January
• The manufacturing work-week for all employees rose by 0.3 hour to 39.9 hours
• Average hourly earnings of all employees on private nonfarm pay-rolls increased by 4 cents, or 0.2 percent, to $22.45
• U-6 unemployment, the broadest measure of unemployment, which includes the 2.5 million workers who have given up looking, declined from 17.3% to 16.5%, which is also a positive indicator.

Here is an interesting chart from Calculated Risk showing where employment recovery is relative to other recessions:

My observations:

These numbers are still very weak. The growth of part-time workers reflects employers' uneasiness in taking on full-time employees. Much of this improvement is a wait-and-see attitude by employers. This is also reflected in the slight improvement in the average workweek and average hourly earning. Employers push their own employees harder first rather than hire new ones during economic uncertainty.

The opinions about these numbers today are all over the board: see David Rosenberg, Mish, and the WSJ's RealTime Economics for a sampling.

Rosenberg had perhaps the most interesting comment of all today:

While there will be many economists touting today’s report as some inflection point, and it could well be argued that we are entering some sort of healing phase in the jobs market just by mere virtue of inertia, the reality is that the level of employment today, at 129.5 million, is the exact same level it was in 1999. And, during this 11-year span of Japanese-like labour market stagnation, the working-age population has risen 29 million.

This is a startling statistic and shows the problem with the boom-bust cycles the Fed has gotten us into.

This is where one needs to be cautious. I have mentioned often the business cycle process that, regardless of government interference in the economy, economies do repair themselves. Bankruptcies, unemployment, management's drive for more efficiency, and debt reduction are all part of the process that goes on and is necessary for a recovery.

It is almost impossible to tell from this data whether the employment gains are a result from normal business cycle activity or is a temporary result from government stimulus. My personal view is that it is a bit of both, but mainly from federal stimulus which will fade by Q2 2010. I have been projecting that the stimulus's impact will be transitory, and like all government spending, never creates wealth or permanent jobs. I think Q2 or at the latest, Q3, we'll see GDP settling back down to low, stagnant growth.

Comments

[dumpster]

like 9.7 duh..

that and the fairy god mother

1.36 Million Jobs Knocked off December Payrolls; Depression’s Job Loss Increased by 19% 
- January Unemployment: 16.5% (U-6), 21.2% (SGS) 
- Serious Jobs and Unemployment Deterioration in Months Ahead

"No. 276:  Reporting Focus: January Employment and Benchmark Revision "
http://www.shadowstats.com/

[Problem Is]

When you guys are posting links to Rosenberg's article and Shadow stats, keep in mind if we go to the link and are not paid subscribers we can not view it for reference.

Maybe you could post a little more of the text from Williams so we can referernce his always well placed analysis.

Thanks for posting some facts.

[dumpster]

well the numbers speak for them selves ...

you would think some of these guys making some point on unempoyment would source as many site as possible before giving out dredge.. 

it is like reading some sort of fairy tale.. and what else is BS. 

[Econophile]

Gluskin Sheff is free. You need to register though.