Friday, February 07, 2014

A tale of two unemployment numbers

I'm going to start this posting off with two different numbers, from two different news sources.  First, is the New York Times story on today's unemployment figures:
For the more than 10 million Americans who are out of work, finding a job is hard. For the 145 million or so who are employed, getting a raise is even harder.
The government said on Friday that employers added 113,000 jobs in January, the second straight month of anemic growth, despite some signs of strength in the broader economy. The unemployment rate inched down in January to 6.6 percent, the lowest level since October 2008, from 6.7 percent in December.
But the report also made plain what many Americans feel in their bones: Wages are stuck, and barely rose at all in 2013. They were up 1.9 percent last year, or a mere 0.4 percent after accounting for inflation. Not only was that increase even smaller than the one recorded in 2012, it was half the normal rate of wage gains in the two decades before the last recession.
The stagnation helps explain why many people feel apprehensive even though the economy grew at a robust pace in the second half of 2013, corporate profits rose, the stock market boomed and the housing market continued to gain ground. The issue cuts across the American work force. In fact, white-collar workers did a bit worse than blue-collar workers last year in terms of wage growth.
“People are running in place in terms of their living standards,” said Ethan Harris, co-head of global economics at Bank of America Merrill Lynch. “There’s almost no growth in spending power.” As recently as 2008, when the economy sank deeper into recession and Lehman Brothers collapsed, wages still managed to rise by 3.5 percent, before inflation. But the combination of a backlog of workers left behind in the recession’s wake, as well as productivity gains resulting from new technologies, means salaries may not rebound anytime soon.
“We won’t see stronger wage growth until unemployment gets below 6 percent and we begin adding 200,000 jobs a month,” Mr. Harris predicted. Friday’s data from the Labor Department shows an economy performing well below that level, however. The 113,000 jobs that were added in January fell far short of the 180,000 economists had anticipated, and came after a particularly weak December. Despite the decline in the jobless rate, some economists said on Friday that job creation had indeed slowed, in what might be called a winter wobble for the economy — the cold weather equivalent of last year’s summer swoon.
Dean Maki, chief United States economist at Barclays, noted that over the course of November, December and January, the more reliable three-month pace of job creation stood at 154,000, roughly 75,000 positions fewer than employers added in September, October and November. Initially, the weak report for December was blamed on wintry conditions that inhibited hiring, but Mr. Maki said a second straight month of disappointing job gains led him to conclude that the cold and snow could not be blamed this time. 
You have just got to love these unemployment figures.  We have an anemic job growth, where employers added only 113,000 jobs in January,  and yet the unemployment rate dropped from 6.7 percent in December 2013 to 6.6 percent in January 2014. So what happened here?  How about Americans stopped looking for a job in January, and were dropped from the unemployment rolls?  According to the Economic Policy Institute:
In today’s labor market, the unemployment rate drastically understates the weakness of job opportunities. This is due to the existence of a large pool of “missing workers”—potential workers who, because of weak job opportunities, are neither employed nor actively seeking a job. In other words, these are people who would be either working or looking for work if job opportunities were significantly stronger. Because jobless workers are only counted as unemployed if they are actively seeking work, these “missing workers” are not reflected in the unemployment rate.

As part of its ongoing effort to create the metrics needed to assess how well the economy is working for America’s broad middle class, EPI is introducing its “missing worker” estimates, which will be updated on this page on the first Friday of every month immediately after the Bureau of Labor Statistics releases its jobs numbers. The “missing worker” estimates provide policymakers with a key gauge of the health of the labor market.
What the Economic Policy Institute is saying here is that the "missing worker" are those workers who are not employed or are seeking employment due to the weak job market.  And as the unemployment rate only counts workers who are actively seeking work, these missing workers are dropped from the unemployment rolls. 

The Economic Policy Institute estimates that when you count in the missing workers, the true unemployment rate is at 9.9 percent!

Current “missing worker” estimates at a glance

Updated February 7, 2014, based on most current data available

  • Total missing workers, January 2014: 5,730,000
  • Unemployment rate if missing workers were looking for work: 9.9%
  • Official unemployment rate: 6.6%
Here is a chart showing the number of missing workers sidelined, from a time period of January 2006 through January 2014.

This chart shows the difference between the missing workers unemployment rate, and the labor market unemployment rate, both from a time period of January 2006 through January 2014.

What is even more surprising is this chart, showing that a majority of missing workers are in their prime working age.

Am I surprised at this disconnect between the labor market unemployment rate, and this missing worker rate?  Not really.  I've known that workers who have exhausted their unemployment benefits are dropped from the unemployment rolls. The long term unemployed is still a huge problem in this country, with around 3.6 million Americans having been unemployed for six months or more.  The labor participation rate for January, 2014 stands at 63 percent of Americans over the age of 16 are participating in the labor market--wither working in a job, or looking for a job.

Even worst, wages continue to stagnate.  Wages were up 1.9 percent for 2013, or around 0.4 percent after inflation.  This increase is smaller than the wage increase recorded in 2012, but it was also half the nominal rate of wage gains before the 1990s recession.

The stock market went up today:

Bad news appears to be good news again as investors shrugged off the tepid jobs report and put their faith in the Federal Reserve.

The Dow soared 160 points Friday, while the S&P 500, and Nasdaq also rose even though the government said that only 113,000 jobs were created in January. Economists surveyed by CNNMoney expected the U.S. economy to have added 178,000 jobs. The unemployment rate ticked down to 6.6%.-- its lowest level in five years.
It was the second straight day of gains in what's been a choppy week for the market. Stocks did wind up finishing the week in positive territory. But the Dow is still down almost 5% this year.
 I really do not know how long this disconnect can continue.  You have a government unemployment rate figure that is a complete lie due to some serious fudging.  Wall Street cheers this fudged unemployment rate, sending stocks even higher.  Wages remain stagnant.  Middle and lower class Americans are cutting back on their spending due to lost jobs, or the stagnating wages.  Meanwhile corporate profits are soaring, and consumer spending in the U.S. is being generated by the upper rich.  I get the impression that the U.S. economy is now being built on a house of cards.

The question I have is when will it collapse? 

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