Why did June's unemployment report look so bad -- a net 18,000 nonfarm payroll jobs created, according to the Bureau of Labor Statistics? Well it looks like the BLS got it wrong this time. And understanding why may help to understand some of the pervading pessimism that is hurting economic growth -- both for consumers and employers. The U.S. economy has become too complex to be understood by one set of statistics -- such as the monthly jobs report. And the resulting wild swings in growth projections can only unnerve the general public -- and even decision-makers less versed in economic terms.
Some economists are scratching their heads on this one, because retail sales are growing 8 percent annually, both manufacturing and the service sector employment continues to expand, and another private payroll survey -- the ADP Report -- showed some 157,000 new private payroll jobs in June. Some of the poor report was due to Japan's earthquake-tsunami disruptions, of course. It turns out that lots of electronic as well as auto parts manufacturing was disrupted in Japan. But there's more.
It also has to do with the Bureau of Labor Statistics Seasonal Adjustment factor. That is an adjustment made to compare same month seasonal variations over several years. I.e., if hiring normally surges during June by one million new jobs (from lots of student entrants into the summer job market, for example), then the U.S. Bureau of Labor Statistics only counts the number above one million as new jobs when seasonally adjusted!
Econoday's senior economist R. Mark Rogers was one of the first to notice this anomaly. The difference, as the Econoday graph shows, is approximately one million jobs between not-seasonally adjusted vs. seasonally adjusted nonfarm payrolls. In fact, the not-seasonally-adjusted payrolls rose 376,000 in June, following a 631,000 jump in May, according to Econoday. So why not publicize that number, instead of the paltry 18,000 jobs number (57,000 private jobs created less 39,000 government jobs lost)?
Because economists in particular want to see the yr-to-yr differences in seasonal fluctuations. It is not difficult to see the problem. During the recession and soft recovery years of 2008, 2009, and 2010, the seasonal factors used by the BLS were significantly smaller -- minus 927,000, minus 949,000, and minus 927,000, because of the Great Recession. If last year's seasonal factor were used for this June's data, for instance, the overall payroll number would have been 135,000 higher and would have topped expectations, according to Dr. Rogers.
This is a serious difference. Then why were 1,060,000 'seasonal' jobs subtracted in June--a number closer to the pre-recession June 2007 level, vs. the June 2010 level of 927,000 from the actual total of new jobs? And why are seasonally adjusted numbers used for the general news reports, anyway? It is calculated with an algorithm created by the Labor Dept. The fact that, say, one million more jobs are usual in June because schools are out can mean signs of substantial growth when it happens during an economic recovery. And it is being masked by the seasonal adjustment.
Therefore, it does look like Labor Dept. economists overestimated the June job surge, which in turn underestimates real jobs growth when some sectors like housing are still in recession! And that can cause real confusion about the direction of this economic recovery -- if one isn't an economist.
Backing up the suspicion of a faulty seasonal adjustment are the weekly initial jobless claims. They continue to fall, and would have been below 400,000 in the latest week, if Minnesota had not laid off so many state workers because of their budget standoff. This is when average weekly claims below 400,000 have historically been a sign our economy is in recovery.
Incidentally, would it make a difference if we knew the payroll report only shows the net job creation numbers? In fact, more than four million jobs are actually lost and created every month in the U.S. It is the difference between the two that constitutes the nonfarm payroll number. The just released May BLS Job Openings and Labor Turnover Survey (JOLTS) survey shows this. Approximately two million employees were laid off in May, the last month surveyed, while two million quit their jobs. With the May seasonal adjustment (SA), a total 4,011,000 jobs were added in JOLTS (with its smaller sample amount).
And, the number of job openings in May was 3.0 million, as the Calculated Risk graph shows, unchanged from April. The number of job openings in May was 862,000 higher seasonally adjusted than in July 2009 (the series trough) yet remains well below the 4.4 million openings when the recession began in December 2007. Of course, the JOLTS report is one month behind the unemployment report
So which number do we believe? It may be necessary for economists to make such a distinction, but does that make sense to the general public? This probably means the economy is doing better than the pundits are saying, but it takes a very savvy reader to know the difference, and its certainly no confidence builder -- which doesn't help the rest of us trying to plan for the future.
Harlan Green © 2011
Follow Harlan Green on Twitter: www.twitter.com/HarlanGreen
Robert Leahy, Ph.D.: Unemployment's Human Costs
Big business won't build up in the US, till we all make less than the Chinese.
See? We don't need the Republic, the rich folks will "take care of us".
Vote for the Progressive caucus in the primaries and the dems in the general. The real founders types.
http://cpc.grijalva.house.gov/
Not the DLC corporatist anti-populist folks:
http://en.wikipedia.org/wiki/Democratic_Leadership_Council
1. Because this administration is clueless.
2. Because liberalism has failed everywhere it has be tried.
3. Because businesses fear their future labor costs will skyrocket and they will be over regulated out of business.
4. All of the above.
Ask a simple question...get an answer.
Economies react to historical events and it takes time for those reactions to work through the system. Who was in charge the previous 8 eight years? what policies were in effect then?
What specific policies are in place now that are slowing the recession recovery?
Whether you hate public employees or not, they buy from the private sector. Just like everyone else.
When they lose their jobs, that reduces demand, which leads to more layoffs in the private sector as well.
http://www.recordnet.com/apps/pbcs.dll/article?AID=/20110622/A_BIZ/106220310/-1/A_NEWS13
It becomes a self fulfilling prophecy, an endless circle going round and round, spiraling..........down the drain.
It's healthy economic growth in reverse.
Economists are still arguing to this day what got the US out of the "Great Depression", but the general consensus is the massive spending and effort of WW2, brought it finally to a close, and led to years of prosperity.
Can't buy your way out of a recession? That's for smarter people that me to discuss, but it sure looks like you can "cut" your way into a major depression, which is what the Republican leadership seems to want.
Destroying our economy, to gain political or personal power, doesn't strike me as a very "patriotic" thing to do.
9.2% ...16.1%....22% Use the one which suits your agenda.
- All finished goods greater than $200.00 dollars in retail price, must have at least 25% of their finished assembly, construction or final constitution completed in the United States in order to be sold here.
- Any US Income moved overseas must be subject to an 15% expatriation fee.
Throw in NAFTA and other trade deals and you can easily find your missing jobs. But shockingly nobody is brave enough to admit this. Not many are ready to stand up and face the facts: globalization has been a utter failure.
Naa Dems would never allow it.
The US economy has become disconnected. Wall street racks up RECORD PROFITS. There is obviously nothing wrong with our economy. Unemployment is at the highest levels since the Great Depression, and there is no plan EVEN UNDER DISCUSSION to bring that number down. One must conclude that the people of America are irrelevant to the economy of America. HAMP has billions allocated, not being used. The DOJ is not looking to prosecute every bank with fraudulent loan documents, but seeks to join their criminal conspiracy and absolve them of all claims.
Economists no longer talk about the economy. They talk about statistical variations, and why 18,000 isn't 135,000. All of this has nothing to do with weak jobs numbers. The real reason we have weak jobs numbers is that nobody who matters cares.
They are waiting to see if Dems win the debate and who get shafted with the higher taxes to pay for it.
Meanwhile the Simpson – Bowles recommendations just sit there waiting for someone with a brain to come along………….
Can we also assume (not using a BLS assumption about the summer help) that come August or September the sky will begin to fall and we are sliding back into a double dip economy? It was somewhat disingenious to not mention this scenario in your article don't you think?
Or would it be better to use the BLS number because the SA is baked into the cake we have to eat?