Fri 5/4/12 3:22 PM – Why the Unemployment Report is Worse Than it Seems

Today’s unemployment report by the Department of Labor (DOL) disappointed many today and stocks sold off sharply. The report should have disappointed them more.

Last month the DOL reported that the economy added 227,000 in Feb.

Today, economists on average expected DOL to report 177,000 jobs. It reported just 120,000, only 70% of what was expected and only 53% of February’s number.

Actually, it is possible that the economy actually created zero net new jobs last month. The way DOL calculates the number is by what large employers tell it. In addition, because small and medium businesses actually create ALL the net new jobs in America and small businesses don’t report to DOL like large companies do, the DOL estimates each month how many jobs small businesses created.

DOL does this by virtue of the infamous birth-death model (birth and death of jobs, not people). Many have complained that this model does a poor job and that they suspect it of often over-estimating new jobs.

Question: of the 120,000 new jobs reported as created last month, how many came from the birth-death estimate? Answer – 200,000, more than the whole total of new jobs reported!

Last, let me say a word about the unemployment rate, which reportedly fell from 8.2% to 8.1%. Yeah!!

Unfortunately, the only reason the rate dropped was that 522,000 people dropped out of the labor force last month and were thus not counted as unemployed. They either retired or went back to school, took a volunteer job, went on welfare, went homeless, moved in with Mom and Dad, etc. So, the true unemployment rate did not drop, in fact, just the opposite.

The better rate than the unemployment rate is the employment rate, that is the percentage of people who are working. That went LOWER last month to 58.4%. That means that only 58% of the US population has a job. In Dec 2007 it was 64%.

Leave a Reply

Your email address will not be published. Required fields are marked *