Friday, October 5, 2012
Unemployment at 7.8%????
The Bureau of Labor Statistics (BLS) reported today that 114,000 jobs were created last month and the unemployment rate fell to 7.8% (U-3). Some have been a little more than skeptical. Rick Santelli of CNBC, who had predicted the rate would cross below 8% before the election said, "I told you so!".
Jack Welch Tweeted: Unbelievable jobs number..these Chicago will do anything..can't debate so they change the numbers".
One might be excused for a little suspicion. The economy must add anywhere from 150-200K jobs per month to just keep up with the population increase. So how does an anemic 114K jobs lower the unemployment rate the most in 24 years??
The explanation is partly explained by the way the two numbers are derived. The 114k number is derived from business reporting payrolls, so they can be fairly well relied to be fairly accurate even if they represent part time or temporary jobs. Meanwhile, the unemployment rate is derived from a monthly "household survey" of 50,000 people. these numbers can, as one can imagine, vary quite a bit from month to month as they are a relatively small sample of the US' population. The 114k jobs creation seems aligned well with previous months while the 7.8% unemployment rate implies there was job creation of over 800k jobs! That's quite a variance.
And while U-3 unemployment ( Total unemployed, as a percent of the civilian labor force (official unemployment rate) declined to 7.8%, its notable that the widest definition of unemployment which includes U-3 plus all persons marginally attached to the labor force, plus total employed part time for economic reasons, as a percent of the civilian labor force plus all persons marginally attached to the labor force, aka U-6, was unchanged last month at 14.7%.
Lastly, the labor participation rate remained essentially unchanged, implying that the entire reduction of U-3 unemployment was entirely due to job creation rather than a reduction of the work force. As I said, with just 114k new jobs, its hard to imagine how that could be.
I have no idea, if there are shenanigans going on at the BLS, but the data is often murky leading many to refer to the BLS as the "BLSBS" for a reason.
I'm hoping there will be an update from Biderman who follows and utilizes real time information on employment and has been a frequent critic of the outdated methods used by the BLS. If or when he posts it I will update this post and note: UPDATED at the top.