June jobs report: Unemployment rate irrelevance

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AUSTIN, July 10, 2014 —The U.S. Labor Department released the all-important Employment Situation Report last Thursday afternoon, just before the long Fourth of July holiday weekend.

Given the timing, the report almost went unnoticed, except by President Obama, who hastily threw together an afternoon appearance to trumpet the new numbers.

On the surface, things could not look better. 288,000 new nonfarm jobs were created in June and the unemployment rate dropped two tenths to 6.1 percent, over a one percentage point drop just since last October, now to its lowest level since September 2008.

However, things aren’t always how they appear to be.

White House: President touts latest jobs report at venture capital startup
White House: President touts latest jobs report at venture capital startup

275,000 new part-time jobs


275,000 of the 288,000 net new jobs created last month were part-time taken “for economic reasons”, according to Labor Department Report A-8.

In June, there was a net gain of just 13,000 full-time nonfarm jobs.

In his 7-minute speech, President Obama apparently celebrated the loss of 275,000 full-time jobs in favor of 275,000 part-time jobs taken for economic reasons by desperate Americans.

We’ve now seen the fastest job growth in the United States in the first half of the year since 1999 (applause)… We’ve seen the quickest drop in unemployment in 30 years… 10 million jobs created over the course of the last 52 months
-President Obama, 1776, 7/3/2014

The Administration has viewed job creation through rose-colored glasses for so many years it is incapable of facing reality. Reality is that seven million jobs were permanently lost in the Great Recession, never to return. Reality is that many of the new jobs are low paying or part-time. Reality is that millions of discouraged Americans have simply dropped out of the workforce entirely.

Author/BLS data: Most June job growth was part-time for "economic reasons"
Author/BLS data: Most June job growth was part-time for “economic reasons”

Is the unemployment rate losing its meaning?

The unemployment rate isn’t what it used to. For proof, compare it to the last time the unemployment rate was 6.1 percent: September 2008.

September 2008 is special. It’s the last month of a booming economy. By month’s end the housing bubble burst, Lehman-Brothers filed for bankruptcy, stocks plummeted and the world’s economy teetered precariously on the brink of total financial collapse.

Important differences show up when comparing before the Great Recession to today. Those differences highlight how the unemployment rate has become less relevant.

Population growth

The first thing to pull from the A-1 population survey this month is that the working age population of the United States. It’s grown by 13.5 million since September 2008 and is 5.4 percent higher today.

Aspects of the economy that should grow should be at least 5.4 percent higher today.

But the civilian labor force has grown only 0.7 percent. If labor force growth matched population growth then there should be 7.3 million more workers in the labor force today than there are.

The vanished workers plummeted the labor force participation rate from 66 percent to 62.8 percent. The last time it was this low was March, 1978 – over 36 years ago!

The total number of Americans employed has grown by only a 0.8 percent. If the number of employed Americans matched population growth then there should be 6.8 million more Americans employed today than there are right now to match 2008’s 6.1 percent unemployment rate.

Where did all the workers go?

Labor force shrinkage

Perhaps the most revealing statistic from the A-1 population survey this month is the increase in Americans not in the labor force. That number, since September 2008, has leaped by 12.3 million, up a disturbing 13.4 percent!

Millions of workers have simply vanished from the labor force. Poof! Gone. Labor force dropouts since 2008 have made today’s unemployment rate a shadowy remnant of its former self.

When looking deeper at hours worked and wages earned (LEU0252881600), the lucky ones that still have full-time jobs are putting in longer hours for less weekly take-home pay than in September 2008, after adjusting for inflation. Women have fared far between than men in this recession.

Forced part-time for economic reasons

Not only is the unemployment rate artificially low, but the quality of jobs distressed workers are forced to taking today are lower, too. This is shown in the A-8 report.

Of the workers still in the labor force, 1.4 million took part-time work for economic reasons. That is a disturbing 18.5 percent increase since September 2008, three times higher than population growth. It’s where most of June’s 288,000 new jobs came from.

Workers are not choosing to work part-time because they want to, they are working part-time because they have to

The most startling statistic in the A-8 report has to be that, since September 2008, there has been an alarming increase of 41 percent in the number of workers taking part-time jobs because that is all they can find! It makes up 1.1 million of those who took part-time jobs for economic reasons.

On the other hand, the number of workers who took part-time work for non-economic reasons has risen by just 3 percent. That is below population growth.

Workers are not choosing to work part-time because they want to, they are working part-time because they have to.

Conclusions

Since the Great Recession began, the unemployment rate has become almost meaningless because so many millions have left the labor force. And many of the jobs ordinary Americans can find are low paying or part-time taken out of desperation.

Adjusting for inflation, those fewer who are working full-time are working longer hours for less weekly take-home pay.

During his remarks, made to enthusiastic audience applause, President Obama boasted there have been 10 million jobs created in the last 52 months. What he didn’t point out is that the United States should have 6.8 million more jobs today than in September 2008, just through population growth alone. The President also omitted accounting for the 629,000 government jobs that have been lost.

The President didn’t point out that 275,000 of the 288,000 new jobs created last month were part-time taken by distressed workers because that is all they could find.

The monthly jobs report mainstays – unemployment rate and job creation – could hardly look better for June. However, things aren’t always how they appear to be.

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  • RGZ_50

    Add to this, the Bureau of Labor Statistics and ADP’s studies both disclaim that the accuracy of their reports, due to multiple factors (mainly because they are extrapolations of small actual numbers of data), are potentially wildly inaccurate. If, for example, the Labor Department reports 220,000 jobs, it is possible that 180,000 of them are entirely fictitious!

    The author also correctly examines the growth of the working age population in comparison to the unemployment numbers. Between 200 and 250 thousand is the number of (full time) jobs needed just to maintain pace with population growth. That doesn’t even address the recovery of jobs lost in the economic meltdown of 2008. The reported rate of 6.1 is pure fiction.

    • Steve Davidson

      This is true, BLS reports have huge error levels. You should never ascribe to much meaning to a single report. That is why a comparison between June 2014 and September 2008 has so much meaning. It shows nearly a 6 year jobs trend.

  • Art Istick

    Despite Obama’s apocalyptic prophecies regarding the 2013 sequester, $700,000 was still wasted on a musical about man-made global-warming.

    • Steve Davidson

      The main problem with this Administration is that every month it tries to paint lipstick on a pig to make the jobs picture look a lot better than it is.

      If the Administration put as much energy into creating jobs as it does trying to make it look as rosy as possible, then there would be a lot more Americans working.

  • David

    Yes, pure fiction. Of course, if Romney had been elected in 2012 instead of Obama, Republicans would be shouting from the mountain tops about this incredible achievement and taking all the credit for it.

    Until we address the issue of the drastically widening wealth gap that is swallowing our middle class whole, and the policies that have led to it (almost all of which are the brainchild of Republicans) then yes, we will have problems.

    • Steve Davidson

      Robbing Peter to pay Paul is a simpleminded solution for a complex issue.

      Romney probably would not have been able to solve the jobs problem either; but he understands what it takes to make payroll and create jobs and could do a much better job than the guy we got.

      President Obama hasn’t taken the subject of job creation seriously since July of 2009 when he claimed the “Stimulus” had turned the economy around and then started saying “but there is still more we can do” month after month after year after year and did very little.