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Friday, October 8, 2010

What's in an Unemployment Number??? You Might be Surprised..

The whole country, well at least the traders and investors, waited on pins and needles to hear the pronouncement from the Labor Department regarding the creation of jobs. At 8:30am EST the announcement flew out across the internet, the talking heads and news radio and the news was not good; granted it could have been worse.

The report show that the unemployment rate remained steady at 9.6% and that was the good news and this is the headline number that the markets will look at in general. Additionally the report shows that the private sector trended up 64,000 while the public sector declined 159,000.

Starting with the private sector the report shows that +17K jobs were added in the health care space mainly in ambulatory health care services which consists of physicians/dentist offices, home/outpatient healthcare and diagnostic medical labs. The professional service category added +28K jobs, most of them temporary workers, which is not surprising as business may have slashed too many to quickly. , but are not confident enough to hire back workers. After running my own small business I would be leery of hiring permanent employees in this environment; I would want to see improving fundamentals and know the costs for healthcare and taxes before taking on the expense of adding personnel, which might explain why the number according to BLS is skewed to the temps.

Interestingly the Food Service worker segment added +34K jobs, which was surprising as since as the unemployment rate grows people stay in and brown bag it. I guess there are a tremendous amount of our countrymen who don’t even know how to boil water let alone cook a meal.

Mining even added +6K jobs, which I actually found to be a low number given the rise in metals both precious and base. Manufacturing, Wholesale trade, retail trade, transportation, warehousing, information and financial showed essentially no gain.

The construction industry edged down -21K jobs due to a reduction in non residential specialty trade contractors, while overall construction has been flat since February 2010. I guess this indicates that the housing market has temporarily stabilized, but with the coming Atl-A resets it remains to be seen if there is not a further decline in construction spending causing job cuts in this space

Government jobs were the big loser as -159K jobs were lost. The Federal component was -77K due to temp census jobs of which +6K remain from a high of +564K jobs, which earlier served to cushion the unemployment numbers to an upside bias. At the State level jobs were down -76K both across all sectors including education, as cities, towns and states grapple with shortfalls and shrinking tax bases. This figure is a tell tale that problems could be brewing in the municipal and state bond markets as I had written in my post ”Municipal JENGA”.

Another tell tale is the average work week statistic which remained unchanged. This is indicative that production and business may have stabilized at the current level. If the employment picture were getting ready to improve the statistics regarding average workweek, hourly earnings and overtime would be showing some increases. If the demand were present the business would be increasing production and having workers work more hours, overtime would increase as business would demand more output from workers before just running out and hiring. Given the current environment this figure should be increasing if you were going to see improvement in the overall employment picture, but it is not, at least not yet.

Detailed in the report released today at the end of page 3 were the revisions to non-farm payroll which are note worthy as the last two monthly figures were revised upward. It is not uncommon to have revisions in the report but to me the trend in the revisions is what is of note. The revisions are as follows July non-farm payroll was revised to 12K more jobs lost and the August number was revised to 3K more jobs lost.


The most disturbing and least reported aspect of the BLS report is a table on page 27 which gives the employment picture sliced up by different measures. As I said earlier the headline number is U3 which currently stands at 9.6%. I like to look at the broadest measure U6 which includes as many people in the workforce as possible. The U6 measure is relevant because it counts people who are part time or underemployed. The U3 number pretends that these people don’t even exist and makes the U3 number less useful in gauging the true health of the employment market. The current U6 figure is 16.2(not seasonally adjusted) which is essentially the same as September 2009, so we have made no real progress since then contrary to the media reporting. According to the report there are currently 154 million potential private sector workers and not including the almost 21 million government workers giving us an 174+ million workers. The unemployment rate is calculated based upon the 154 million so we will stick with that figure.

Based upon the U3 figure roughly 14 million(9.6%) of our fellow Americans are unemployed, however, if you take the U6 figure in to account it rises to a shade under 25 million(16.2% not seasonally adjusted) people. The seasonally adjusted U6 number leapt to 17.1% or 26.3 million of our friends and neighbors!  If you really want to cheer yourself up you should visit the site shadowstas.com where John Williams crunches the numbers “old school” removing the statistical smoke and mirrors to give the clearest picture. On shadow stats the unemployment rate is calculated in the same manner as it was in 1994 before the discouraged worker category, those who have given up looking, were removed from the calculus. The current figure on shadow stats is running at about 22% which would mean that there are truly about 34 million Americans unemployed. This is why I have stressed that “this is not your father’s recession” no it is a depression.

Until we see reductions in the U6 and shadow stats(dot com) version of the unemployment numbers you can bet that things are not on a stable footing. The U3 number is what the traders key off of but it is of limited value since sustainable recovery will not begin until businesses start hiring and the amount of people left out in the cold begins to fall, then things will become self sustaining. Furthermore, the private economy needs to add upwards of 100K jobs a month just to keep the unemployment rate where it is, but to drive the unemployment rate down the private sector needs to create upwards of 235K jobs a month per CBO (congressional Budget Office) estimates. I personally think that estimate is to low because the recovery is taking a long time to get here the 235K number will probably have to be revised upward as will the 100K number.

Let’s hope that the economy gets some “organic” traction not FED money printing juiced phony traction. Of course, what it takes to get the employment traction is a full article in and of itself. The bottom line here is that one needs to look and think critically about the data points you follow, your fortunes depend upon it.

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9 comments:

Granulated Sugar : said...

government jobs are still the best when it comes to job security *;'

admin said...

The point of the post was not to indicate the security or lack thereof for government jobs; instead it was to point out that government is growing at the public expense. Government jobs while necessary are truly a drag on the economy when there are an excessive amount of them like to day. This excess ultimately leads to collapse and or high inflation to pay for it when the tax base can no longer support it. The government jobs in the Soviet Union were secure until they weren’t. Just because the government has a printing press and can print money to keep people shuffling paper doesn’t mean it is secure especially when the government crowds out private enterprise. Adding extra government jobs during a crisis may help alleviate some problems initially, but once it reaches the tipping point it is a problem not a remedy. What we need now is wealth creation at all levels not wealth destruction. Government jobs are not productive and do not add to the GDP in a manner that promotes enterprise and capital formation; once again if they did the USSR would still be in business today and Cuba would be a superpower. Who do you think pays the bills? So while you may think that government jobs are secure and that may be true to a degree but when the bond market or our creditors pull the plug on financing that will mean government job cuts. Additionally, they don’t have to just pull the plug by selling; if foreigners or bond buyers don’t show up to the government’s $175 billion dollar a month auctions or they just curtail their purchases you could have a government employment problem.

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