The best place to find out what is really happening in jobs

The core of the labor force is weakening; baby boomers are working longer – via Calculated Risk

Whenever I want the inside skinny on the jobs numbers, I turn to the Calculated Risk blog. No one can beat Bill McBride for his clear, steady tone (even when it felt as if the world was ending) or for his command of the numbers.  And the charts are to die for.

The labor force numbers released last Friday for March were surprisingly weak — only 88,000 new jobs were added to the nonfarm payrolls, less than half the number predicted. The unemployment number edged down to 7.6%, but only because so many people gave up looking for work.

The participation rate in the labor force has been a major topic of debate over the past few years. Baby boomers are retiring, which would naturally reduce what is known as the participation rate in the labor force. There are other factors of well — both bad and not so bad.

Let me share with you what Bill McBride sees:

  • Fewer 16- to 24-year-olds are in the labor force because they are going to school more. That’ should be a plus for the economy.
  • The number of 25- to 54-year-olds is declining — a negative. Those are the prime working and saving years. The downtrend is a function of the recession and structural changes in the economy. (See chart on left; click on the graphic to enlarge.)
  • More oldsters are working longer (some say so they can keep their health benefits). But there aren’t enough of this cohort hanging in to boost the overall participation rate.

For more details, go read the Calculated Rate blog post here. Eye opening.


Heads up: Census hiring to cloud May jobs data

The jobs report due out tomorrow marks the first major measure of the economy for the month of May. But beware: The Bureau of Labor report has a lot of noise from temporary hiring for the national census so it will mask underlying weakness in the jobs market. Economists are estimating that the economy added 540,000 jobs last month — the biggest gain in 27 years — but 415,000 are Census workers. Calculated Risk estimates about half of those workers will be leaving their jobs this month (see chart below).

To get a better measure of the core economy, “ex” out the Census Bureau hires, which would leave a skinnier gain of 125,000 workers in the nonfarm payroll category. In April, the economy added 290,000 nonfarm payroll workers, but that number drops to  224,000 without the census takers.

The expected slowdown in permanent hires in May is pretty much a mirror of all the other data that has been emerging in recent weeks, especially from jobless claims, which, after falling sharply late last year, have stalled out in recent months. Similarly, data from ADP, which does not include any government workers, reveals that hiring is far from what one would expect when emerging from a deep recession. If the economists are correct about the pace of May hiring, it will take about 7 years to recoup all the job losses of the Great Recession.

The analysts of Hedgeye have put together a graphic that shows just the job loss devastation: We are at record levels for anyone unemployed more than 27 weeks. Congress has extended unemployment benefits to an unprecedented 99 weeks (although it hasn’t appropriated the money to pay everyone — another story for another time.) Get an eyeful at the bottom of this post. (Click on the graphics to enlarge.)

Census workers will inflate then deflate the nonfarm jobs report

Census worker chart via Calculated Risk

Long-term unemployed chart via Hedgeye

Krugmanesia: (n.) An economic memory lapse

Long-term unemployment is the wrench in the recovery story

Long-term unemployment is the wrench in the recovery story (click to enlarge)

Nobel-prize winning economist Paul Krugman had a hissy fit in his column the other day, charging Republicans in the Senate with both intellectual and moral turpitude — especially when it comes to the question of extended benefits for jobless Americans.

More than 6 million adults have been out of work for more than 26 weeks — that’s 4.0% of the civilian workforce (see graphic above) or 40% of the unemployed. To date, Congress has extended jobless benefits to this unfortunate cohort. That would seem to be the course of compassion. But the compassion may be misdirected, which brings me to this story of Krugmanesia.

From his perch in the much-mortgaged New York Times glass tower in midtown Manhattan, Krugman gives a lesson in economics while soundly rapping the knuckles of any who appear indifferent to the plight of the unemployed.  Krugman extemporizes that those who support extending benefits (Democrats) live in one world while those who oppose extending benefits (Republicans) live in a Second Life-like world. Krugman lectures like the Princeton University professor he once was still is:

Take the question of helping the unemployed in the middle of a deep slump. What Democrats believe is what textbook economics says: that when the economy is deeply depressed, extending unemployment benefits not only helps those in need, it also reduces unemployment. That’s because the economy’s problem right now is lack of sufficient demand, and cash-strapped unemployed workers are likely to spend their benefits. In fact, the Congressional Budget Office says that aid to the unemployed is one of the most effective forms of economic stimulus, as measured by jobs created per dollar of outlay.

But that’s not how Republicans see it. Here’s what Senator Jon Kyl of Arizona, the second-ranking Republican in the Senate, had to say when defending… [Kentucky’s Sen. Jim] Bunning’s position (although not joining his blockade [to extend benefits]): unemployment relief “doesn’t create new jobs. In fact, if anything, continuing to pay people unemployment compensation is a disincentive for them to seek new work.”

via Op-Ed Columnist – Senator Bunning’s Universe –

The ever-curious James Taranto decided to investigate just exactly what classical economics textbooks say about benefits for the long-term unemployed. And here’s what he found in one popular economics textbook:

Public policy designed to help workers who lose their jobs can lead to structural unemployment as an unintended side effect. . . . In other countries, particularly in Europe, benefits are more generous and last longer. The drawback to this generosity is that it reduces a worker’s incentive to quickly find a new job. Generous unemployment benefits in some European countries are widely believed to be one of the main causes of “Eurosclerosis,” the persistent high unemployment that affects a number of European countries.

So those Second Life Seantors turn out to be quite up to snuff on economic theory. They might even be more than avatars when it comes to compassion. Of course, Krugman might dismiss this particular textbook; so many are laced with political bias. Not to worry. This particular tome, called Macroeconomics, was written by Paul Krugman and his wife Robin Wells.

It’s easy to make fun of economists — they are in the business of making predictions and models that often seem divorced from reality. It’s even easier to make fun of economists who contradict themselves on the basics. But in these extraordinary times we can’t afford to err on the side of generosity — or make dire missteps in rebuilding the labor force. No labor force, no real economic recovery. Period. In fact, consider these distressing facts: Transfer payments from the federal government now accounts for a record 18% of personal income in the U.S., says David Rosenberg, an economist few can mock (the worst you can say is that he’s a permabear). The outlays come at a time when monthly debt service for our national borrowings have touched $17 billion, or nearly 16% of monthly receipts, an alarming ratio.

Click here for Taranto’s podcast from his daily Best of the Web column. It’s worth hearing Taranto tell the story of Krugman and the two worlds of the cooked and the uncooked.

Graphic courtesy of Calculated Risk
H/T Gregor Macdonald and MacroTwits for Treasury data

Seasonal adjustments behind unexpected drop in jobless rate

jobless_jan_2010The jobless rate dropped to 9.7% in January from 10% in December– an unexpected turnaround. But the jobs picture is much shakier than that headline number suggests: seasonal adjustments to the numbers account for much of the rate change. Further, the nation still lost 20,000 jobs last month.  Calculated Risk notes that on a percentage basis, this recession has produced the most severe job losses since WWII.

Over at Credit Writedowns, Edward  Harrison explains the nitty gritty of the seasonal adjustment to the unemployed number.

…In December 2009, there were 15.267 million people unemployed on a seasonally-adjusted basis. This ticked down to 14.837 in January 2010, a fairly large drop of 430,000. Meanwhile the unadjusted numbers go the other direction – massively. In December 2009, the number of unemployed persons was 14.740 million. This rose 1.4 million to 16.147 million. Therefore, we saw a swing of over 1.8 million between what the unadjusted and the seasonally adjusted data are saying about who’s unemployed. The number of people employed increased by over 500,000 on a seasonally-adjusted basis, while it decreased by over 1.1 million on an unadjusted basis. That’s a swing of 1.6 million.

Bottom line: the unemployment rate downtick has nothing to do with people dropping out of the workforce, it is an statistical aberration due entirely to seasonal adjustments in the household survey in the number of people employed and unemployed.

via Unemployment number decline is all about seasonal adjustments – Credit Writedowns.

A few other items to note in the report: The Bureau of Labor Statistics released its annual revisions, which showed job losses were much more severe in 2009 — by 600,000. On the plus side, temporary hiring continues to expand; hourly wages rose; and the workweek expanded by one-tenth of an hour, a sign that employers may be turning part-time workers into full-time workers.

We will have to wait until February to really know if the unemployment picture is improving in a more meaningful way.

Retail sales jump as fear factor for the employed ebbs

Weekly jobless claims edge up as retail sales rise (clcik to enlarge)

Weekly jobless claims edge up as retail sales rise (clcik to enlarge)

Retail sales numbers for January came out today and were surprisingly strong. Here are few things to think about in reviewing the numbers:

First, anyone who hasn’t lost a job over the past two years is probably feeling that they aren’t going to lose their jobs. The fear factor in the economy is ebbing, so those with jobs are spending a bit more.

Second, the retail numbers are unlikely to signal much good news for the unemployed — at least not for a long while. Calculated Risk notes that the four-week running average for weekly unemployment claims is rising, with the average now 28,000 above the January low:  “Both the level of claims, and the recent increase in the 4-week average, are concerning and suggest continued job losses.”

And finally, I can’t help but wondering when and whether these numbers will translate into higher tax receipts for states. So far, retail sales numbers and tax receipts aren’t in sync. Gotta keep an eye on that. The numbers, for example, don’t take into account store closings.

Here’s the top of the  Wall Street Journal story on January retail sales; click on the link at the bottom for the full story:

Retailers continued their comeback last month, with long-suffering categories like department stores and apparel retailers showing signs that consumers are returning.

January same-store sales rose 3.3%, according to the 29 publicly traded retailers tracked by Thomson Reuters. The monthly gain, the strongest since April 2008, exceeded projections for a 2.5% advance at stores open at least a year and followed a 2.9% rise in December.”I think we're seeing that customers came out after Christmas and stayed out,” said Janet Hoffman, global managing director for retail at consulting firm Accenture. “Retailers are doing a significantly better job at managing inventory. So the markdown frenzy we saw last year didn't occur,” which will help profit, she said.

via Retailers Gather Strength as Sales Rise 3.3% –

Graphic from Calculated Risk