The first thing I would like to cover is the EXTREMELY great news that the non-farm payrolls added 243,000 additional jobs to the economy last month! However, if you read my commentary on the December’s jobs report you might have found I was at the least pessimistic when you consider how many times in the past we have heard our nation was in the midst of a “recovery.” There was ample evidence within the December report—released in January—to be leery about. For example, most of the Transportation and Warehousing activity which increased was due to a rise in the hiring of couriers and messengers (+42,000) out of 50,000 jobs created. It had little to nothing to do with an increase in businesses restocking their inventories.
I also have and continue to have apprehensions concerning the housing market. Housing startups and building permit issuance are two fairly reliable indications as to whether the economy is on the mend or not because new residential construction usually leads the economy out of recession. It also impacts other industries on a broader scale as well as showing that consumers are confident enough to enter into longer-term financial commitments.
Using Census data I reconstructed a graph which puts the decline within the housing market into context. What is represented is the permit issuance and new startups from 2004-2011.
As you can see, the uptick in the housing market is modest, meaning this is not analogous with a healthy or strong recovery. Regardless of this, it would be quite an honest criticism to point out that in spite of our depressed housing market jobs are still being created and people are finally returning to work. This would be a completely candid critique, but it overlooks a structural dilemma facing the labor market, one which may come back and haunt us at a later date. A disturbing trend of workers leaving the workforce has increased dramatically and little is being done to alleviate it.
Interestingly though, this week Tyler Durden, proprietor of the financial blog Zero Hedge, made a similar claim based on some numbers he found in the January jobs report. Durden found that a staggering 1.2 million people exited the labor force in one month. This caused quite brouhaha among economic optimists which lead to a plausible explanation as succinctly explained over at Political Math.
UPDATE: Nate Silver pointed me to the BLS extrapolation of their population adjustment data (Table C at the bottom of this release). Long story short: the 1.2 million change in “Not in the Labor Force” is due entirely to the population adjustment and is not (as I assumed when writing this post) a straight across-the-board proportional increase. From December-January, we actually saw a “Not in the Labor Force” decrease which would mean people returning to the workforce. This is awesome. I’ll leave this post here as a testament to my own ignorance.
However though, this decrease of 1.2 million in one month is not what I am speaking to. If you look at the number of “marginally attached” you have a figure of 2.7 million people which has accumulated since the onset of the recession. Many of these folks, 1.7 million or so, are out of the workforce all together due to family responsibilities or student commitments. Subsequently though, the other 1.1 million fall into the discouraged worker category. These are “persons not currently looking for work because they believe no jobs are available for them.” Also, from December to January there was a net increase from 945,000 discouraged workers to 1.1 million—decreasing the workforce by 110,000.
Durden was initially correct about a decrease in labor force participation, but the source of his number was not only flawed, it was overinflated as well. Going by the numbers the BLS is reporting, the civilian workforce now totals 154.3 million with 12.5 million unemployed. Now if you include the 1.1 million discouraged workers reported in the most recent report to both metrics—155.4 for the civilian workforce and 13.6 million unemployed—you have an adjusted unemployment rate for January of 8.8%.
Here is another chart which I derived from the Bureau of Labor Statistics which annualized (2002-2012) the trend of discouraged workers and how much of problem this is truly becoming.
James Pethokoukis, in a post at the Enterprise Blog, brings our attention to a report from the policy and communications consulting firm Hamilton Place Strategies which points to the same trend.
Taking into account the population revisions of the past year, we now have a better view of the drop in the unemployment rate from 9.1 percent to 8.3 percent. If the participation rate last January (64.2 percent) were the participation rate today, the unemployment rate would be 8.9 percent, instead of 8.3 percent, so most of the shift of the past year is due not to the improvement in the labor market, but the continued drop in participation in the labor force.
This is not meant to detract from the positives of the job creation we are now seeing, just that we need to be completely realistic about our present situation. I completely understand why the BLS measures the economy in fashion they do, but under certain circumstances it does not reflect reality. And when you add that the economy is such an intricate part of this campaign season we can probably expect no mention of these folks or the bleak prospects they are facing.
Related articles
- New December jobs report indicates a sustainable recovery is underway, not quite. (thewesternexperience.com)
- January Jobs Report: Good News for the Economy, Bad News for the Pessimists (swampland.time.com)
- Saturday Reads: Dismal Science Edition (skydancingblog.com)
- Good News All Around In January Jobs Report (outsidethebeltway.com)
- Long-Term Unemployment Remains High, Millions Leave Labor Force (destructionist.wordpress.com)
- Unemployment rate drops to 8.3%, 243K jobs added (hotair.com)
Excellent work man.
Someone hire this man!
They can’t man. It’s like I am part of the discouraged workers…according to the BLS I don’t exist.
Lol!
I`m with ya Mike, I `m not completely discouraged -but I can feel it`s breath on my neck. I don`t buy the jobs numbers for a minute, the gov`t provides the data – these are the same folks that keep telling us that SS money is in a lockbox somewhere safe, and won`t tell us how many hundreds of billions(of printed money) were sent to other countries banks at the worst possible economic time for America. We will be paying that bill in inflated money for a very long time. The jobs numbers are shouted from the hilltops when they come out, then whispered from the basement a week later when they are revised down -and they are ALWAYS revised down. I think it`s very simple to understand, this government needs to keep the story going, needs to be re-elected to maintain the current path they have waited so long for, for all the administrations that have played fast and loose with economic numbers and simply made up new rules of math to be able to say they fixed a given economic issue – they are simply making up what they need to politically survive, unemployment below 8% to get re-elected – that the American people are paying a high price and slipping deeper into despair does not bother them in the least.
Sadly, Rick, all of this seems to becoming some sort of norm. I am not tyring to apocalyptic here but this isn’t healthy for an economy or a society for that matter.
Like the boy scouts, smart folks are prepared for whatever may be coming – even the things we fear the most. There are a couple of ways to look at the future, one slightly worse than the other, but one with the possibility of recovery. 1) the current path is followed, the current admin. is returned to power, the result is chaos and economic armageddon, 2) the current admin is handed their ass in Nov. and we only have economic armageddon light. Either scenario can result in arab spring type reactions, if option 1 happens and Obama has no restraints due to re-election worries, I believe the mask comes all the way off and he will shove his communist doctrines on the Country without hesitation – that will result in chaos, as the population will see no choice but to take to the street to stop it, that plays into Obama`s hand as he can legitimately (in his mind) declare martial law and then the Country is his for the duration. Option 2 happens, we get an admin. that knows it must make some hard decisions regarding social programs and raising interest rates substantially to try to get some of the printed money out of circulation, that causes the generational welfare population that has been raised to believe it is their right to be completely supported by others to lose it, inner cities will explode. Personally, I think that happens eventually no matter who is running the show – it has to, it cannot be sustained. We`re being good boy scouts and assuming a cat 5 is coming and preparing accordingly. If option 2 happens, and then repeats in 2016, we may pull it back -option 2 is ugly, option 1 is butt ugly and most likely bloody.
I’m surprised that the discouraged worker number is only 1.0 to 1.2 million.