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BLS Jobs Report Covering October 2012: A Good Report That Still Doesn't Add Up

The Bureau of Labor Statistics continues to struggle with a model that does not correspond well to what is going on in the economy. Follow me. In the Establishment or survey of businesses, 171,000 jobs (seasonally adjusted) were created in October. In the Household survey, employment (seasonally adjusted) increased by 410,000 or about two and a half times the number of jobs created. Now the two surveys have very different levels of statistical significance: 100,000 for the Establishment survey and 400,000 for the Household survey, and they cover slightly different population sets, but it would seem a goal of its modeling that the two surveys converge as much as possible.

There are also other problems. In the Household survey last month, the number of involuntary part time workers (seasonally adjusted) spiked 582,000. As I wrote in a post here (Timing and Phantom Data), about 300,000 of that increase was phantom, the result of a statistical glitch in the seasonal adjustment. As I predicted, most of it (269,000) disappeared this month. Curiously, these phantoms may have been converted into voluntary part timers. Voluntary part timers increased 187,000 this month, but there is no way of knowing.

Nor is the larger and supposedly more accurate Establishment survey immune from problems. Look at the revisions (seasonally adjusted) for the two most recent months

August 96,000 > 142,000 > 192,000
September 114,000 > 148,000

The August jobs numbers were revised upward 100%; September, 30% in its first revision. August went from disappointing to very good. I mean what is the point of the modeling if the initial results signify nothing and that the final results may be either bad or good. With all those caveats, let's turn to the numbers.

In October the potential labor force as represented by the non-institutional population over 16 increased 211,000 from 243.772 million to 243.983 million. The employment ratio increased a tenth of a percent to 58.8%. Multiplying this by the increase in the potential labor force gives us 124,000, an estimate of the number of jobs needed to keep up with population growth. So by this measure October job creation beat population growth by a moderate amount.

Seasonally adjusted, the labor force increased 578,000 from 155.063 million to 155.641 million. Unadjusted it increased 704,000 from 155.075 million to 155.779 million. This is unusual. There has not been this kind of unadjusted increase since the last Presidential election in 2008 and is similar to pre-recession numbers. Given these large increases, the participation rate (the ratio between the current and potential labor force) increased two-tenths of a percent to 63.8% both adjusted and unadjusted.

As already mentioned, the employed increased 410,000 seasonally adjusted from 142.974 million to 143.384 million. Unadjusted, it increased 706,000 from 143.333 million to 144.039 million.

The unadjusted number for the employed (706,000) is larger than the unadjusted number for the increase in the labor force (704,000). The labor force is the sum of the employed and unemployed. So this combination of events can only happen if the number of employed decreases by the difference between the two, and it does going from 11.742 million to 11.741 million. It's unusual although not impossible that the whole of the increase in the employed should correspond to the increase in the labor force.

Seasonally adjusted, unemployment grew 170,000 from 12.088 million to 12.258 million. Since the labor force is 155 million, a tenth of a percent of this is 155,000 or about the same size as the increase in unemployment, explaining why the unemployment rate increased a tenth of a percent to 7.9% seasonally adjusted. Unadjusted, although the unemployment number was essentially unchanged, because of the increase in the labor force, the unemployment rate dropped a tenth of a percent to 7.5%.

The broader seasonally adjusted U-6 rate based on the unemployed (12.258 million, up 170,000), the marginally attached (2.433 million, down 84,000), and involuntary part time workers (8.344 million, down 269,000) decreased 14.7% > 14.6%. This U-6 seasonally adjusted corresponds to 23.035 million, down 183,000 from September. Unadjusted, the U-6 declined from 14.2% to 13.9%.

The BLS' measure of its undercount, those who do not have a job, want one, but have not looked for one in the last month, declined 285,000 from 6.427 million to 6.142 million.

Because this measure does not reflect well changes in the economy, I have developed an alternative to it. In my alternate calculation, I compare the current labor force to where we would expect it to be in a solid economic expansion: labor participation rate of 67%. The difference between these two is my measure of the undercount.

.67(243.983million) = 163.469 million (where the labor force should be)
163.469 million — 155.641 million = 7.828 million (the real undercount)

This is a decline of 436,000 from the September figure of 8.264 million. This is the capture of the undercount that the BLS misses.

With this number we can now go back and calculate where the U-3 and U-6 really are, that is the real unemployment and real disemployment rates.

Real unemployment: 12.258 million (U-3 unemployment) + 7.828 million (undercount) = 20.086 million (down 266,000 from 20.352 million in September)

Real unemployment rate: 20.086 million / 163.469 million = 12.3 % (down from 12.5% in September)

Real disemployment: Real unemployment + involuntary part time workers = 20.086 million million + 8.344 million = 28.430 million (down 535,000 from 28.965 million in September)

Real disemployment rate: 28.430 million / 163.469 million = 17.4% (down from 17.7% in September)

The long term unemployed, those unemployed for 6 months or longer under the BLS' restrictive definition of unemployed: without a job and have looked for one in the 4 weeks before the week in which the Household survey was taken increased 158,000 to 5.002 million but remained steady at 41% of all unemployed.

By race, unemployment among whites was unchanged at 7% and increased, after dropping in September, to 14.3% among African Americans.

___________

In the Establishment survey, seasonally adjusted jobs increased 171,000 from 133.584 million to 133.755 million. The private sector gained 184,000 and government lost 13,000.

Unadjusted, jobs increased 911,000 from 133.881 million to 134.792 million. The unadjusted number though large is not unusual. About 2/3 of it comes from state and local schools and 1/3 is part of the annual build toward Christmas. Education at the local level added 455,900 jobs, and at the state level, 149,800: 605,700 total. The private sector gained 361,000.

Seasonally adjusted, most jobs were gained in areas where quality and pay are poor. 51,000 jobs were added to professional and business services, 36,400 to retail trade, 30,500 to healthcare, and 28,000 to leisure and hospitality.

The average work week for all private employees remained unchanged at 34.4 hours and is the same as it was a year ago. Average hourly earnings decreased one cent to $23.58 and weekly wages declined 35 cents to $811.15. Weekly wages for all employees have increased 1.55% year over year while the CPI has increased 2.1% October to September. Among production and nonsupervisory (blue collar) employees, average weekly hours declined one-tenth to 33.6. Average hourly earnings declined one cent to $19.79 and average weekly earnings dropped $2.32. Weekly wages in this group have increased 0.82% in the last year, again compared to an increase of 2.1% in the CPI. In other words, real wages are falling and they are falling faster in already lower paying jobs.

Conclusion:

Last month, there was a particularly egregious mismatch between the number of jobs (114,000) and employed (873,000). We have this again this month, 171,000 vs. 410,000, on a reduced scale. Although the discrepancy is similar in absolute size, because the numbers are larger, the relative discrepancy is smaller and opposite in the unadjusted numbers: 911,000 jobs vs. 706,000 employed.

Beyond this, there was a significant drop in the undercount, representing an influx of workers from outside the labor force (as defined by the BLS). Since there was also a drop in involuntary part time workers and only a partially compensatory increase in voluntary part timers, that should mean that the 410,000 increase in the employed in the Household survey was almost all full timers. However, for a large increase in the employed, especially in the economic environment we have, we would expect a significant number of these to be in part time positions. This is even more our expectation given that wages and hours declined in the Establishment survey.

The picture is clouded further by the fact that the BLS numbers do not add up. In the A-8 table, voluntary part timers increased by 187,000 even as 269,000 phantom involuntary part timers disappeared somewhere. This yields a net decline of 82,000. But in the A-9 table, the BLS reports an increase of 144,000 part time workers and also an increase of 233,000 full time ones. Now first, these numbers do not add up to the 410,000 increase in the employed. Second, the A-9 is reporting an increase in part timers even as the A-8 is reporting a decrease. On the other hand, they would fit better with the wage and hour data from the Establishment survey. The shorter story here is that the part time data have always been something of a mess, but until the events of last month, this was a side issue. With the wild variation last month, this brought them to the fore and there continues to be a carryover into October. I guess the operating idea is that by the time of the next report, we will have forgotten about all this.

Overall, the jobs and employment numbers were good this month. The wage and hour numbers were not. There are, however, real problems both between the surveys and within the surveys which place significant question marks on what can be gleaned from any one jobs report.

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