BLS Jobs Report Covering January 2012: Not so Smooth Operators
The first thing to say, as I noted last month, is that the Bureau of Labor Statistics (BLS) jobs report covering January 2012 reflects both yearly revisions in the Establishment (business/jobs) survey and the first incorporation of data from the 2010 Census into the Household (people/employment) survey. This means that comparisons with previous months need to be explained and caveated more than usual and in some cases may not be possible.
The most obvious example of this is in the civilian non-institutional population over 16 (the potential labor force which I abbreviate as NIP). For December 2011, this was 240.584 million. The January 2012 number is 242.269 million. This is a difference of 1.685 million. Now the population did not grow this much between December and January. The BLS simply didn't update the 2011 data. If it had, as per the BLS, the December 2011-January 2012 increase would have been 175,000.
Before beginning my own analysis, let me lay out the basics of the BLS report, the stuff that will hit the news. 243,000 jobs were created in January. The November 2011 number was revised upward by 57,000 to 157,000. Unemployment dove another 0.2% to 8.3%.
So what is really going on behind all these changes? For the Household data, we need to keep 3 numbers in mind: the new numbers (seasonally adjusted), what the old numbers would have been if the BLS had officially incorporated the new Census data into them (which the BLS unofficially provides), and the seasonally unadjusted numbers (which can be compared to the seasonally adjusted numbers and less well with older unadjusted data).
Perhaps the best way to see what is really going on is to work down through the numbers largest to smallest. NIP > labor force > employed > unemployed > the BLS undercount.
I have already discussed the NIP. So let's take a look at the labor force, the sum of the employed and those the BLS counts as the unemployed. In January 2012, the seasonally adjusted labor force numbered 154.395 million. In December 2011, it was 153.887 million. This is a difference of 508,000. The BLS attributes 258,000 of this to Census effects and 250,000 to the actual month over month change. But the real story here is in the unadjusted numbers. In December, it was 153.373 million and in January, 153.485 million, a difference of only 112,000. However the difference between the seasonally adjusted and unadjusted numbers is 910,000. Essentially, the BLS is smoothing the numbers because January is the month where the greatest number of seasonal jobs are lost (just as June and July are the months where the greatest number are gained). There are two things to note here. The first is that 910,000 represents a statistical process, not real people, and presupposes that there will be a big pick up in seasonal employment in the summer to compensate for it. The second is that the difference between the seasonally adjusted and unadjusted January 2011 labor force was 714,000 so the BLS increased substantially its smoothing factor this year and I am not sure such an increase was warranted. While the population estimate increased due to the Census, the labor force participation rate was higher in January 2011 than in January 2012.
Along these lines, the labor force participation rate (actual labor force divided by potential labor force or NIP) dropped 0.3% seasonally adjusted from 64.0% to 63.7%. The BLS ascribes all this decline to Census changes. That is the lowest participation rate since May 1983 (unadjusted 63.4%, lowest since February 1984). This is the first of the big red flashing lights to what on the surface is an excellent jobs report. It indicates that one reason unemployment is falling is because the BLS is defining more and more Americans out of the labor force.
Looking next at employment, seasonally adjusted employment rose 847,000 from 140.790 million in December 2011 to 141.637 million in January 2012. The BLS ascribes 216,000 of this to Census effects so 631,000 for the actual month over month change. But this "actual" change is all a smoothing effect. The unadjusted numbers show a 737,000 decrease from 140.681 million in December 2011 to 139.944 million in January 2012. Aren't numbers wonderful? This is how the BLS can tell us that employment is improving at the very same time that ordinary Americans see the opposite.
We see the same effect, of course, in the employment-population ratio (employed divided by NIP). Seasonally adjusted this rate was unchanged December to January at 58.5%. Unadjusted it dropped 0.7% from 58.5% in December to 57.8% in January.
Seasonally adjusted unemployment decreased 339,000 from 13.097 million in December 2011 to 12.758 million in January 2012. The BLS ascribes an increase in unemployment of 42,000 to Census effects and a 381,000 decrease to the month over month change, another smoothing effect. The unadjusted numbers are again the reverse. Unadjusted unemployment grew 849,000 going from 12.692 million to 13.541 million.
And as we would expect, the same trend occurs in the U-3 unemployment rate. Seasonally adjusted, the unemployment rate decreased 0.2% from 8.5% to 8.3% while unadjusted it jumped 0.5% from 8.3% to 8.8%.
What I take to be the BLS' own measure of its undercount is its category: Not in labor force, Want a job now. Again more inversion of the adjusted and unadjusted numbers. Seasonally adjusted December to January, it decreased 66,000 from 6.385 million to 6.319 million. Unadjusted, it increased 360,000 from 6.135 million to 6.495 million.
Turning to the BLS' broader measure of un- and under employment, the U-6, seasonally adjusted decreased 0.1% December to January from 15.2% to 15.1%. Unadjusted it spiked a full percentage point from 15.2% to 16.2%.
The U-6 has three components: the U-3 unemployed, involuntary part time workers, and the unadjusted marginally attached. The marginally attached are a subset of the BLS Not in labor force Want a job now category.
Let's look for a moment at involuntary part time workers, that is those workers who work part time but would work full time if they could find it. Seasonally adjusted these increased 132,000 December-January from 8.098 million to 8.230 million. Unadjusted, they increased 490,000 from 8.428 million to 8.918 million.
The marginally attached were 2.809 million in January. This was an increase of 269,000 from December's 2.809 million.
Summing the components that form the U-6 rate gives 23.797 million, the number that the rate represents.
Now if you have read my previous job posts, you know I calculate alternate measures taking into account my own estimate of the BLS undercount. I begin by calculating what we would expect the labor force to be if the economy was in a good expansion: .67(NIP) or 162.320 million.
The difference between this and the BLS' labor force for January (154.395 million) is my measure of the undercount or 7.925 million. This is a substantial (621,000) increase from my number for December 2011 of 7.304 million. I would attribute most of this to the new Census figure for the NIP. This is a major difference from the BLS unadjusted Not in labor force Want a job now category of 6.495 million. The reason I started calculating an alternative to the BLS number is because I noticed the BLS number did not track well with changes in the economy, such as the December 2007 recession. My measure of the undercount and theirs have been diverging for months.
Once we have the undercount number though we can calculate other things, such as the real unemployed and unemployment rate. We do this by adding the undercount to the U-3. Because of the difference between the seasonally adjusted and unadjusted U-3, I will give both for the real unemployment rate. Seasonally adjusted, we have 20.683 million unemployed and a real unemployment rate of 12.7%. Unadjusted, we have 21.466 million and a real unemployment rate of 13.2%
Now if we add in the involuntary unemployed, we come up with disemployment, the analog to the U-6, and we can look at both seasonally adjusted and unadjusted numbers and rates. Seasonally adjusted there are 28.913 million disemployed and a disemployment rate of 17.8%. Compare this to the seasonally adjusted U-6 of 15.1% and the 23.797 million it represents. Also for comparison although using different bases, my calculation of disemployment last month was 28.499 million and a 17.7% rate.
Unadjusted, there are 30.384 million disemployed currently and a disemployment rate of 18.7%.
The seasonal smoothing I noted continued in unemployment by race and age. The unemployment among whites was 7.4%, a decrease of 0.1%; African Americans 13.6%, a decrease of 2.2%; and African Americans 16 to 19 year olds 38.5%, a 3.6% improvement.
Finally, using the 175,000 month over month population increase I cited early on in this post and an employment-population ratio of 58.5%, the economy needed 102,000 in January to keep up with population growth.
Turning now to the Establishment data, it did considerably better than that. The private sector created 257,000 jobs, government lost 14,000, netting 243,000 jobs gained. What struck me though was that most of the jobs created were poorly paying ones. Professional and business services added 70,000 jobs but 33,000 of these were in employment services. 44,000 were gained in leisure and hospitality. 31,000 in healthcare. Growth in wholesale and retail trade was anemic at 14,000 and 10,500, respectively. If we were looking at the beginnings of a consumer led recovery, we would expect to see it here, and we are not. Manufacturing added 50,000. 44,000 of these were in durable goods. The average work week in durable goods manufacturing increased 0.3 hours to 41.3 hours and overtime 0.1 hour to 3.4 hours which is good but average hourly wages remained unchanged December-January in this sector at $25.30.
Overall, the average private hourly work week remained unchanged at 34.5 hours and average hourly earnings increased 0.17% or 4 cents to $23.29 (a 2% annual rate). In 2011, wages increased by 2%, the CPI by 3% so workers fell behind. The CPI is not released until later this month and we will know then if this trend is continuing. What I can say though is that workers are not making gains even on a very low inflation rate.
So what is the take home in all this. In the Household survey (employment/unemployment), we have a lot of revisions clouding the data but all of the positive numbers are the result of seasonal smoothing. This would be defensible if we could depend on this year being like other years, but we live in interesting times. Smoothing the data to fit an assumed annual cycle doesn't create jobs now. It simply assumes that the jobs deficit now will be made good later in the year and that this will all balance out.
In this regard the 243,000 jobs from the Establishment survey are more problematic for the smooth operators at the BLS than they are for me. You see their unadjusted Household numbers aren't showing it. And even when we look at the Establishment data, the jobs being created aren't good jobs and in terms of wages, workers are making no headway and are even falling behind. Try spinning a recovery out of that.