The Daily Capitalist: Did Unemployment Really Fall to 9.7%?

Maybe, but the numbers are still weak, and chances are we're not yet on the road to recovery

By Jeff Harding | Published on 02.06.2010

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The employment numbers for January came out Friday, and the headline was that unemployment dropped from 10 percent to 9.7 percent. 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. The first is the household survey, which is exactly what it says: 60,000 households reported to the BLS, and that report yielded the 9.7 percent 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 I am told, 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 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, there was 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 people decreased to 14.8 million, and the unemployment rate fell 0.3 percentage point to 9.7 percent.

» The number of people unemployed because of job loss decreased 378,000 to 9.3 million.

» Nonfarm payroll employment was essentially unchanged (minus 20,000).

» The number of long-term unemployed (those jobless for 27 weeks or longer) continued to trend up in January, reaching 6.3 million.

» Since the start of the recession in December 2007, the number of the long-term unemployed has risen by 5 million.

» The civilian labor force participation rate was little changed at 64.7 percent.

» The number of people who worked part time for economic reasons (sometimes referred to as involuntary part-time workers) fell from 9.2 million to 8.3 million.

» About 2.5 million people 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 workweek for all employees rose 0.3 hour to 39.9 hours.

» Average hourly earnings of all employees on private nonfarm payrolls increased 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 percent to 16.5 percent, which is also a positive indicator.

My observation is, 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 on Friday were all over the board.

David Rosenberg had perhaps the most interesting comment of all: “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 labor 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 the second quarter of 2010.

I have been projecting that the stimulus’ impact will be transitory, and like all government spending, never creates wealth or permanent jobs. I think the second quarter or, at the latest the third quarter, we’ll see GDP settling back down to low, stagnant growth.

— Jeff Harding is a principal of Montecito Realty Investors LLC. A student of economics, he has a strong affinity for free-market economics. This commentary originally appeared on his blog, The Daily Capitalist.

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» Calif Welfare state wrote on 02.06.10 @ 10:54 AM

4 out of 10 people in Calif are on welfare or food stamps including illegal aliens—The 60% of us must work hard for the lazy 40 % who dont want to work.

Thanks Boxer- Fienstein & all the paid off union puppets..

» SB Citizen wrote on 02.06.10 @ 07:02 PM

‘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 labor market stagnation, the working-age population has risen 29 million.”’

The biggest contributing factor to this growth of population is the 75,000 legal immigrants per month (and who knows how many illegals) that the Federal government allows in.  Step #1: When you find yourself in a hole - stop digging!

» Charles Croninger wrote on 02.06.10 @ 07:10 PM

“like all government spending, never creates wealth or permanent jobs.”

Sad news for General Dynamics, Boeing, McDonald-Douglas, the US Congress and so many more.

» @Charles wrote on 02.06.10 @ 09:44 PM

You make a good point. A lot of what might be considered private companies do work for the government with government money, especially military. It would be interesting to see the ratio of commercial vs military business. However, I do believe that most jobs come from small to medium size businesses, most often not government funded. Someone look up the stats, I’m too lazy. I’m worn out after my trip to the welfare office for my check today.

» AN50 wrote on 02.08.10 @ 09:49 AM

I posted the following on another thread but it seems appropriate here as well.
I agree that the pentagon budget is over bloated and should be trimmed. Unfortunately, many government programs have a lot of private sector benefits, so just cutting those would be a disaster in a recession. Better watch what you want cut or it might mean your job. No a better idea is to cut those government programs with little or no private sector benefit or have a net negative effect on the economy. Get the monkey off our back first then when our economy has enough momentum to pick up thousands of high paying military/industrial jobs we can go in and start whacking away at bloated pentagon spending. Same for NASA. NASA spent 5% of the GDP during the Apollo years, a remarkable number in its breath and scope. But it also had a tremendous impact on our technology sector a decade later and spurred a two decade growth in our economy that was unprecedented and paid back 5 fold the public expenditure in private sector wealth. So you see there are things that government does that have a net positive on the economy, Welfare, healthcare, Medicare, environmentalism and other social programs have shown to do the opposite. They are net drags on the economy and end up making things worse not better. Stick with what works and shed the rest.

» Charles Croninger wrote on 02.09.10 @ 10:52 AM

“NASA spent 5% of the GDP during the Apollo years, a remarkable number in its breath and scope.”

One might also say an unbelievable number since NASA’s high water mark was 5.5% of the Federal Budget which is a smaller number than the GDP.  Believe it or not.

» AN50 wrote on 02.10.10 @ 02:31 PM

Thanks for the correction Charles, that is what I meant, the federal budget, not the GDP. It is still a large number. And the point is there are government programs that are much better at helping the economy than others.

 

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