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BLS Jobs Report, January 2011: What a mess!

[Warning: If you thought my previous job posts were dense, then my advice is run from this one. It involves many changes that the BLS has made and a significant correction in my own calculations.]

Otherwise jump in.

The big news in today's job report that will be hyped in this report is that unemployment fell 0.4% from 9.4% to 9.0%. The bad news is that this decrease is meaningless. It is the result of the BLS playing with their numbers for a second straight month, not people finding jobs. Although it comes from a different data series, the weak 36,000 growth in jobs reflects this fact.

In the last two months, the BLS has revised down the U-3 unemployment rate by 0.8%. None of this decrease has come from anyone who was unemployed finding a job. This all happened on paper. Now 0.8% may not seem like much to you, but the US labor force is 150+ million, and this 0.8% represents an error of 1.2 million. Another way of looking at this is the last two months changes in the U-3 rate have reduced that rate by 8.2%. On top of this, these changes are using data from the 2000 Census for their baselines, that is ten year old material.

The question we have to ask ourselves is is such a large error acceptable? And if this is the best the BLS can do, what does this have to say about how we use and view its numbers? Each month we hang upon and are spun stories about whether unemployment has increased or decreased by a tenth of a percent, but the BLS is telling us with these revisions that the unemployment could be off by around a percentage point.

This is so even though the BLS revises its initial figures for a month in the two following months (for example, the numbers for March in the April report will be revised in the May and June reports). Then by stretching its year end revisions over two months, this means you can't really make month to month comparisons for November-December and December-January. As I noted last month, revising December figures screws up evaluating year long (January-December) trends because the December number is not the same as the others.

And finally, as we all know, the U-3 unemployment rate is a woefully inadequate indicator of what workers are experiencing in the labor force. For that, we have to look beyond to the U-6 measure of un- and under employment, and beyond that we need to calculate on our own because the BLS doesn't the disemployment rate (the U-6 plus the BLS undercount of the unemployed). Additionally, except with under employment to some extent, none of this touches on job quality, something the BLS doesn't really measure at all.

I find this all both obfuscating and frustrating. With so much flux and uncertainty in its data, at a minimum, the BLS needs to include what its confidence intervals are in its reports. And it needs to be more up front about the problems its models are having in the extreme conditions of the current economic environment. My impression is that most of the instability in BLS numbers comes from models poorly adapted to what we are experiencing.

What I do not appreciate is "The unemployment rate fell by 0.4 percentage point to 9.0 percent in January" which is how this month's report begins. The unemployment rate did not fall. It was changed, and in such a way as to make impossible any direct comparison with the previous figure.

With that long preamble done, I will now look at the January numbers as if they actually mean something. Any December-January comparisons I mention should not be taken as changes in the real economy but rather how the BLS has changed its numbers.

The U-3 (unemployment rate) was reduced, as I said, from 9.4% to 9.0%. The[no-glossary][/no-glossary] 9.0% represents 13.863 million Americans. This is the seasonally adjusted number. Interestingly, the unadjusted number is 14.937 million (a difference of 1.074 million) and corresponds to a 9.8% unemployment rate.

The U-6 rate for un- and under employment was changed from 17.0% to 16.1%. The U-6 is defined as the unemployed plus the marginally attached plus part time employed for economic reasons (i.e. not their own choice) divided by the labor force (employed and unemployed) plus the marginally attached. The January number for the marginally attached was 2.8 million. This is a little tricky because this number is not seasonally adjusted whereas the others are. Also the marginally attached are not counted as in the labor force. The labor force, according to the BLS, was 153.186 million. So we have .161(153.186 + 2.800) = .161(155.996) = 25.115 million. This is the level of un- and under employment.

Both the non-institutional population over 16 (the potential labor force or NIP) and the labor force (employed plus unemployed) numbers were decreased. The NIP numbers went from 238.889 million in December to 238.704 million in January, a reduction of 185,000. The labor force numbers went from 153.690 million in December to 153.186 million, a decline of 504,000. Because the labor force was reduced considerably more than the NIP, the labor force participation rate which is the ratio of these two declined, from 64.3% to 64.2%.

The BLS seasonally unadjusted number for those not in the labor force but wanting a job, i.e. an estimate of their own undercount was 6.643 million. This includes 2.8 million of the marginally attached. My own calculations in the past did not reflect that the BLS does not count the marginally attached in its labor force number. Without the marginally attached, the BLS undercount is 3.843 million.

My own calculation of the BLS undercount is to take a 67% labor force participation rate indicative of a strong expansion and multiply it by the NIP. 0.67(238.704 million) = 159.932 million. Subtracting the labor force from this (159.932 million – 153.186) = 6.746 million. This is my calculation of the undercount. Subtracting out the 2.8 million of the marginally attached which are included in the U-6 leaves 3.946 million.

We take disemployment to be the sum of un- and under employment (U-6) plus the BLS undercount. So if we use the BLS estimate of the undercount (minus the 2.8 million counted back into the U-6), we get (25.115 million + 3.843 million) = 28.958 million disemployed.

If we take my estimate, we get (25.115 million + 3.946 million) = 29.061 million disemployed. This yields a disemployment rate of (29.061 million / 159.932 million) = 18.2%.

This number is lower than my previous estimates which hovered closer to 20%. Most of this change results from my understanding that the BLS does not count the marginally attached as part of the labor force but does count them in the U-6, a situation which since the BLS does not break down its numbers in its tables was unclear to me until now.

I can't calculate from the data how many jobs needed to be created in January to keep up with population growth. I would estimate 95,000. December-March are the lowest months of the year in terms of population growth and with more and more people leaving or not counted in the labor force, this number has declined significantly in the last few years, by about 25,000 a month. In any case, the 36,000 jobs net gained in January were well below this figure.

The take home from all of this is that the BLS needs to do a much better job, in its initial data collection, in its modeling, in the presentation and explanation of its data, and in its revising. As it is, politicians can say we've turned a corner when, in fact, nothing has changed

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Submitted by Hugh on

Not sure what that Bible Gateway link I'm seeing is doing in the post. I didn't put it in and I couldn't get it out.

Submitted by lambert on

One of those little things I've got to fix some day. There's a filter that transforms e.g. Gen 1:1 into a link, so that Corrente devils may cite scripture to their purpose.

You can confuse the filter by placing the cursor after "The" and clicking the "No-Gloss" button.

I should to a spreadsheet and a book for you, but I'm consumed with Egypt... It's on my list!

Submitted by jawbone on

from the household survey...but not from the business survey. It was posited that indoor employment made up the 36,000 new jobs in the business survey, which was considered very good. But, the bad weather apparently meant jobs were not worked if being outdoors was a requirement.... Okaaaaay, then.

(But...what about the plow operators, salt truck drivers, shovelers, etc.?)

I'm not totally trusting my memory about the 600,000 number, but the audio isn't available until after 7PM.

Audio and transcript is up. Yes, household survey did indeed show 600,000 new jobs.

YDSTIE: Well, you're right. Part of the reason that they're out of sync is that the jobs number and the payroll number the jobs number and the unemployment rate are figured from different surveys.

The jobs number comes from a survey of businesses. The employment rate is figured from a survey of 60,000 households. And what that household survey showed was a much stronger jobs picture than the survey of businesses. It showed almost 600,000 new jobs being added.

And that, of course, pushes the unemployment rate down very sharply, to nine percent. Now, economists tend to rely more on the survey of businesses to count job increases. They think it's more reliable over the short term and that the household survey is not as accurate. And certainly the two surveys are at odds in this report. But you know, sometimes during an inflection point in the economy, the household survey leads. So I guess one can hope that it's more accurate than the business survey of businesses at this point.

David Leonhardt of the NYTimes said on NewsHour that possibly we're at the turning point of recovery and lots (and lots and lots) of new businesses have started up and hired people, and the business survey doesn't reach them because they don't know about all these thousands and thousands of new little businesses yet....

Submitted by Hugh on

Unemployment decreased by 589,000 and employment increased by 590,000, but only 36,000 jobs were created. There is just something wildly out of whack with those numbers. Jobs and employment numbers come from different surveys. So they won't be the same, but that they are this far off screams modeling error. As I said in the post, if you look at the seasonally unadjusted numbers, all but a hundred thousand of that 1.2 million swing in employment disappears and unemployment goes right back up to 9.8%. Add in those 36,000 jobs and most of even that remaining hundred thousand is explained.

I am willing to accept that the BLS has a difficult job and in the current economic conditions it is not doing it very well. But when I see numbers as screwy as these, I really begin to wonder if they are being jiggered for political reasons.

Also it's important to point out that you do not have to be employed for the whole month to count as employed. This is how the BLS defines employment:

Employed persons: All persons who, during the reference week (week including the twelfth day of the month), (a) did any work as paid employees, worked in their own business or profession or on their own farm, or worked 15 hours or more as unpaid workers in an enterprise operated by a member of their family, or (b) were not working but who had jobs from which they were temporarily absent.

The reference week in January was the 9-15. I just have difficulty in seeing how a storm storm even a bad one would have much impact on the numbers given the BLS definition of employment.

Submitted by jawbone on

These numbers are stunningly screwy. One commentator, I don't recall where, said February should "smooth thing out."

Submitted by Hugh on

I see the David Leonhardt comment. I have several problems with it. First, has anyone anywhere in the country seen a big upsurge in hiring? Because I haven't. 600,000 hires in a month is a 7.2 million yearly rate or enough to bring the U-3 unemployment rate down to 5% in a year. Second, has anyone seen a big spike in small businesses opening up in their communities? Have commercial occupancy rates skyrocketed and no one noticed? Have all those vacancies in malls and strip malls suddenly disappeared? Third, the BLS uses a "birth/death" model that tends to overemphasize new business hiring. This would have to be something far beyond that.

We have all been handed numbers by the BLS that make no sense. Leonhardt and the MSM are struggling to come up with some scenario that will make them make sense even if this doesn't correspond to the ordinary reality we all can see. This is usually called wishful thinking. I'm more interested in looking at why the numbers don't make sense. Once we understand that what is happening here is occurring in the model, not the real world, we are left with a picture consistent with what we are, in fact, seeing in the real world.

badtux's picture
Submitted by badtux on

According to the BLS, January employment grew by 36,000 while the number of unemployed people declined by 600,000. So, err, where did those 564,000 people go -- did they simply drop out of the labor force? Err, no, the BLS *also* says that "the labor force was unchanged".

So we have 564,000 people missing. Hmm... Soylent Green R people?

- Badtux the Numbers Penguin

letsgetitdone's picture
Submitted by letsgetitdone on

know what to think about a jobs report, Hugh. I always wait for your post on it. Thank you for these great analyses.