Unemployment Rate Drops to 7.8%

When Obama took office the country was bleeding jobs. We’ve now had positive job growth for 31 straight months

Great news, the unemployment rate is down to 7.8%, finally below the 8.0% barrier.  Not only were 114,000 jobs added last month, but revisions to the two previous months suggest the job market is stronger than had been thought.   Most people look at this as a good bit of positive news for the President, boosting his argument that we’ve turned the economy around even though there is more to do.

But wait, Republicans say, this isn’t as good as it seems.   We’ll dismiss the conspiracy theorists who say the numbers are cooked (just like the polls are skewed *eyes rolling*), and look instead at legitimate reasons not to see this as being as good as it appears.

1.  Recoveries are usually faster.    Consider the following graph:

Clearly this recovery has been slower than past recoveries.   But this doesn’t mean Obama has failed.   Back in 2009 I labeled what we’re going through the equivalent of “Great Depression II” and predicted it would take a long time for the global economy to restructure and recover.     The economy is now global, and no industrialized state has burst out like we did from past recessions.

Simply, this is not a typical recession caused by over production and the business cycle.   Rather, this is a structural crisis caused by a massive increase in debt (both public and private) and a severe financial crisis.   Moreover, due to high debt the traditional tool to get out of a recession — stimulate the economy — is no longer as useful.   Currencies are also under stress due to large increases in money supply, creating a risk of inflation.   This is more like the Great Depression, a structural adjustment to the global economy which probably will take the better part of a decade – or more.

This crisis could also be compared to other examples of a financial crisis induced recession – in those terms we’re still early in the process!

To be sure, Obama and his economists predicted that they could get out of the recession more quickly, and it’s fair to criticize him for not understanding the depth of the crisis.    Still, the prospects that any President can fix this even in the next four years are dim.

2.   Unemployment numbers are skewed due to increased part time work, a decline in work force participation and under counting the unemployed.   Here are a few charts to consider:

Labor force participation rates are down from a high of 67% at the height of the last boom to 63.6% this month (it’s been under 64% all year).      This means that a lot of people have left the work force.  There are probably more single income households now, as well as people going back to earn degrees.     Fewer people in the work force does lower the unemployment rate.   Also:

All recessions show people moving to part time work due to the recession.  This recession saw the steepest increase in absolute terms, but  those numbers rarely go down until well after the recession ends.    Higher levels of part time employment may be a fact of the new economy for some time.   Consider as well longer term unemployment:

This is usually a lagging indicator of a recovery, but the numbers have already been declining – though the growth was steep during the recession.   The decline could be seen as a good sign.  Finally, there is the issue of the “real” unemployment number:

To say that real unemployment is about 16% makes the situation sound horrid, though by that measure real unemployment is always high – over 10% during the 2004 election campaign.     Moreover real unemployment tends to mirror official unemployment in trend lines, meaning that improvement is still improvement, even if the total is higher.

So what to make from these four issuess – part time workers, lower labor participation rates, long term unemployment and the real unemployment rate?   None of these statistics point to a robust recovery.   That is in line with my conclusion in point one – we’re in a global economic crisis from which there will be no quick and easy escape.

Yet the decline in the unemployment rate and 31 months of increasing job numbers are good things.   This recovery is probably as good as we can hope for given the structural imbalances in the global economy.    And, while Governor Romney is right in saying this isn’t like past recoveries, there is no reason to distrust or dismiss the steady if slow improvements in the US economy.

UPDATE:  It occurs to me there is one other thing to consider – seasonal adjustments.   Both September and October see seasonal adjustments that generally lead to lower unemployment rates.  Clearly that was part of the 0.3% drop in unemployment, though there have also been months where jobs were added and seasonal adjustments led to an increase in unemployment.  Overall, they’re a wash.

  1. #1 by bravesmartbold on October 6, 2012 - 18:26

    Yes, I can even feel the difference when browsing employment ads. But, in Miami, in Florida, it’s still pretty gloomy.

  2. #2 by lbwoodgate on October 6, 2012 - 19:04

    I’ve got my own conspiracy theory about record breaking corporate profits being sat on under the weak premise of regulation uncertainty. These “job creators” are not shaking that money tree until after the election.

    But you hit on a legitimate fact about sluggish growth Scott that the GOP just refuses to lump into the poor job growth equation, and that’s the impact of economies around the globe stanching any rapid recovery here.

  3. #3 by Snoring Dog Studio on October 6, 2012 - 19:40

    Good discussion, Scott. What we all should look at is trends, not just one number in isolation. Frankly, it’s not a bad thing if people who were ready to retire dropped out of the employment numbers. And it’s not a bad thing if people are going back to school for retraining or brushing up on skills. I wish we’d all just stop underestimating the effect on every country given that this is a global economic crisis. Repeat – it’s global. It will take a few years before the dust settles. But in the meantime, we can still improve our situation here at home and start planning for more alternative energy sources and making sure Wall Street never gets us in this nightmare again.

  4. #4 by SShiell on October 7, 2012 - 00:04

    Mark Twain once said “Facts are stubborn, but statistics are more pliable.”

    The economy created just 114,000 jobs in September, yet the number of people employed somehow increased by 873,000 and the number of unemployed dropped by 456,000. Meanwhile the U-6 unemployment rate, the broadest measure of unemployment and underemployment, stayed steady at 14.7%.

    The drop in the number of unemployed could be explained as the number of people no longer looking for work but where did that 873,000 number come from?

    With this being the last official jobs report prior to the election, doesn’t it make you wonder even just a little bit?

    • #5 by Scott Erb on October 7, 2012 - 11:30

      I’m not sure where you get your numbers SShiell. September and October are always months where seasonal adjustments usually make the unemployment rate a bit lower. But where do you get the 873,000 number?

      UPDATE: OK, I’m reading the Bureau of Labor Statistics and found that 873,000 number. I’ll keep reading and see what I figure out here.

  5. #6 by Scott Erb on October 7, 2012 - 11:41

    Here are some bits from the BLS:
    “In September, the number of job losers and persons who completed temporary jobs
    decreased by 468,000 to 6.5 million. (See table A-11.)”

    Also there was a large increase in part time work. Part timers are counted as total employed but not jobs added. Gotta get my son to soccer, but here’s the data link from the BLS:

    I would think an increase in part time work is a good sign. The link goes to tables for anyone who really wants to dig through the data. The BLS is highly regarded, don’t buy into any conspiracy theories.

    • #7 by SShiell on October 7, 2012 - 15:31

      Well, while we are at it, let’s take a look at some more figures provided.

      The “employed” number (873,000) has jumped that high only four times in the past 64 years (not counting jumps resulting from changes in “population controls” used by the BLS, generally driven by recent Census results). And that every other instance was during a period of powerful economic growth. Is this economy (+1.3% GDP growth at last measure) what you would call powerful?

      The ratio of workers to the population climbed 0.4 points in September, a one-month change the size of which we haven’t seen since the booming Reagan years. And even including the Reagan years, that size of an increase has happened only eight times in the past 50 years.

      And with all of this, this jobs report shows an economy that continues to struggle. After all, an economy that’s creating just 114,000 jobs is barely producing enough new jobs to keep up with population growth, much less drive down the real unemployment rate.

      What’s more, the drop in the official unemployment rate was driven largely by a big upturn in part-time jobs. Workers who can’t find full-time work, or forced to take huge pay cuts to land work, are not signs of forward momentum. Meanwhile the BLS’ broader, but little noticed, measure of the unemployed, which includes discouraged workers and those working part time because they can’t find full-time jobs, remained unchanged in September at 14.7%.

      Who’s buying into any conspiracy theories? I’m just asking a few questions but not getting any answers that don’t pass the smell test.

      Again, with this being the last official jobs report prior to the election, doesn’t it make you wonder even just a little bit?

      • #8 by Scott Erb on October 7, 2012 - 16:33

        It was a big month for part time hires, which may be a sign companies need to hire but aren’t ready to provide full time employment. Not sure about the seasonal adjustments. It would be better to have new jobs and not so many part time hires, but hey – it’s a move in the right direction. Also, there is another jobs report in early November before the election. Seasonal adjustments in September and October’s reports will probably benefit the President, but it’s that way every year.

      • #9 by SShiell on October 7, 2012 - 18:07

        “It was a big month for part time hires, which may be a sign companies need to hire but aren’t ready to provide full time employment.”

        I could be wrong but I would think September is a little early for part-time Christmas hires.

        There are 3 ways to look at this:
        1) Critical thinking skills are not highly regarded way up there in Maine.
        2) You are more than willing to give this President a pass on the smell test.
        3) You are completely trusting in what the BLS reports.

        Myself, I tend to trust but verify – regardless of administration. And right now verification is more than a little bit on the shakey side.

      • #10 by Scott Erb on October 7, 2012 - 18:40

        Wow, you’re really going the conspiracy theory route? That’s not feasible, the BLS is not made up of political appointees (there are NONE), if there was a conspiracy there would be Republicans there who would report it. It is birther territory to think the BLS is somehow cooking things for Obama. Read more: http://economix.blogs.nytimes.com/2012/10/05/explaining-the-big-gain-in-job-getters/

      • #11 by SShiell on October 7, 2012 - 20:20

        From the Report you link:
        “The numbers come from a tiny survey with a margin of error of 400,000. Every month there are wild swings, and no one takes them at face value. The swings usually attract less attention, though, because the political stakes are usually lower.”

        873,000 increase in jobs in a survy where the margin of error is almost half of that number?!?!? And you don’t even blink?!?!?

        Bush, on occasion, used this very survey (yeah – I already knew about the survey before you provided the link) several times during his administration and was castigated fiercely every time he did. From the left and the right!!! And the criticism was well deserved!!! I even voiced my own displeasure at his use of the survey (a survey of 50,000 households – the number used to be 60,000 during the Clinton administration).

        I’m not crying “Conspiracy”! No, I don’t need to. I firmly believe the survey results will stand up to scrutiny. I question the use of the methodology!!! Let me ask you a simple question – Why in the world would the BLS choose to use this survey at a time when the political stakes are what they are today?

  6. #12 by Scott Erb on October 7, 2012 - 20:25

    The BLS use this because its the methodology they use – to change methodology because of politics would be wrong. If the methodology needs to be changed, it should happen either before or after an election year. You can’t change a methodology a month before an election. But some of the “bad” numbers earlier this year came from a similar methodology (and indeed, there were revisions upward). It cuts both ways. Still, no matter who wins the election, there can be a discussion about proper statistical methods for the labor survey.

  7. #13 by Norbrook on October 8, 2012 - 07:10

    Why in the world would the BLS choose to use this survey at a time when the political stakes are what they are today?

    Because they’ve been using this methodology for the past few decades, and it wasn’t until now that you suddenly decided to question it?

    • #14 by SShiell on October 8, 2012 - 13:25

      I would have you note my previous comment: “Bush, on occasion, used this very survey several times during his administration and was castigated fiercely every time he did. From the left and the right!!! And the criticism was well deserved!!! I even voiced my own displeasure at his use of the survey.” (Note: parens removed) So, as you can see from my own comment, I have questioned the use of this survey in the past regardless of administration.

      Some explanation may be needed: The BLS (Bureau of Labor Statistics) uses two surveys for their monthly report. They are the Establishment Survey Data and the Household Survey Data. As I stated earlier regarding the Household Survey Data “The numbers come from a tiny survey with a margin of error of 400,000.”

      The last time the BLS reported a gain of 873,000 jobs from any survey was 1983 when the economy was chugging along at the dismal rate of +7.75%! Fast forward to today, where this economy is jetting along at a reported +1.3% GDP rate (Q2) and projected to climb at a rate of 1.6% GDP (Q3) rate. And yet the report chooses to use the Household survey that shows a magical increase of 873,000 people employed rather than the Establishment survey of 114,000 to determine its unemployment rate.

      In the past where the household survey was used, the difference between the two was minimal compared to this one (765.7% difference). So I have two questions regarding this month’s report:

      1. What is the criteria for using one survey over another to determine the unemployment rate?

      2. When there is such a wide discrepancy in findings between the two surveys, why would the BLS use the Household survey over the Establishment survey to fashion their report?

      • #15 by Scott Erb on October 8, 2012 - 13:37

        Again, they use the same methodology they’ve used as Norbrook notes, for decades. Neither Obama now nor Bush then has/had control over how this is done.

        They haven’t changed which survey they use. If you are to come up with an unemployment percentage you need to survey households, you can’t get that from the other survey. It would be methodologically unsound to take data from one and use it to calculate the other. Gallup shows 7.5% unemployment in their survey. There is no reason to doubt the number, though I agree broad unemployment and under employment is much higher — but that’s always the case.

      • #16 by SShiell on October 8, 2012 - 13:47

        I will end my comments on this topic with this one question:

        Would your acceptance of this Employment Report just prior to the elections have been so trusting if there had been a Republican in the White House?

        Cheers & Out!

  8. #17 by SShiell on October 8, 2012 - 14:12

    I was wrong. I do have one last comment to make.

    Funny you should mention Gallup showing an unemployment rate of 7.5%. Well, it seems Dennis Jacobe, Gallup’s chief economist, writes that he seriously doubts whether the economy created nearly 900,000 jobs in September, as measured by the Labor Department’s seasonally adjusted household survey. Excerpts:

    “The problem is that even though the Household survey tends to be very volatile, this decline seems to lack face-validity, particularly after the prior month’s numbers. The consensus estimate was that the government would report that the unemployment rate was unchanged at 8.1% in September. GDP growth was 1.3% in the second quarter and seems to be no better this quarter. The government’s Establishment survey shows there were 114,000 new jobs created in September — very close to the consensus of 113,000 — and not sufficient to lower the unemployment rate.”

    “A quick comparison of the government’s seasonally adjusted and unadjusted employment data seems hard to reconcile with the weak economy. For example, the government shows the number of employed workers increasing by 775,000 in September from August on an unadjusted basis. This surge in hiring seems surprisingly large given the current economy, not to mention the even larger adjusted increase of 873,000. Similarly, the number of unemployed declined by 954,000 in September on an unadjusted basis. This is reduced to a smaller adjusted decline of 456,000 — but both numbers are also surprisingly large.”

    And the real kicker: “The Household results should be discounted. … The obvious conclusion is that a new employment measure is needed.”

    Source: http://behavioraleconomy.gallup.com/2012/10/time-to-replace-unemployment-rate.html

    Cheers & Out for good this time!

    • #18 by Scott Erb on October 8, 2012 - 14:31

      It would make no difference who the President is – I’ve always had that approach to numbers like these, just as I quickly accepted the Supreme Court decision in 2000. I try to analyze with my opinion clear, rather than give partisan spin. I know I have a bias, but I want my analysis to be accurate so I try to adjust for my bias. If I see myself questioning basic government stats, I’d pull myself back and say “that’s just wishful thinking.

      However, I agree there can be quibbles about the methodology. Over time it balances out, which is why I think the BLS keeps it. The numbers jump a bit from month to month but general trends are clear. But if there is a better methodology (as I suspect there is) I think that should be explored. Also, notice how the BLS revised upward numbers from the past two months. That hardly gets a mention and doesn’t really do anything for Obama. But the low numbers they originally gave hurt the President. So both parties can complain, but I think such complaints are less about any cooking of the books than unintended consequences of the method used. Perhaps it should be updated after the election. (Also to be fair, one has to go over the past months of looking at Household stats – perhaps there were undercounts as well…but at this point I don’t have time to do that, this report is already becoming yesterday’s news).

    • #19 by Scott Erb on October 8, 2012 - 15:06

      Spent more time on the Gallup bit. I think he makes a good case for switching methodologies. Maybe after the election no matter who wins there can be a discussion about that.

  9. #20 by Joe R. on October 9, 2012 - 01:17

    I just wanted to add a bit about “seasonal employees”. My company hires in mid-August & September for Halloween. We let those people go a week after. All those Halloween shops and probably Party City do the same. Know I’m a bit late but figured I’d add my two cents since I work for a small business that has seasonal employees.

  10. #21 by Stan on October 11, 2012 - 12:01

    The Labor Department was forced to admit that “one large state didn’t report some quarterly figures”.


  11. #22 by Norbrook on October 11, 2012 - 20:33

    One might also point out that new unemployment claims for the last month are down as well, which indicates that there’s more workers keeping their jobs.

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