Custom Search

Saturday, October 06, 2012

Why Unemployment Dropped To 7.8% While Total Unemployment Stayed At 14.7%

By Susan Duclos

Unemployment dropped to 7.8 percent, according to the Bureau of Labor Statistics, (BLS) yet total unemployment, which is unemployment, underemployment and marginally attached, referred to as the U6, remains the same as last month at 14.7 percent, according to the Labor Department.

Notable fact-  Unemployment was 7.8 percent in January 2009, before Obama's so-called recovery. Bonus notable fact- The U6 unemployment was 14.2 percent in January 2009 and is  at 14.7 percent today.

Getting passed the hyperbole, which we covered yesterday, stimulated largely because a drop from 8.1 percent to 7.8 percent in one month, coincidentally just one month before the November presidential election, there are a couple statements from a BLS economist as well as other economist, which explain the conflicting data.

Starting with a few quotes and explanations from the BLS economist, Steve Haugen, via CBS News:

He said that part of the reason for the relatively large drop in unemployment this month has to do with the sample size of the current population survey, also known as the household survey. Because the sample size is smaller than the payroll survey, for example, there's more variability in the numbers.

"On a month-to-month basis, the household survey employment measure is more variable than the payroll employment measure due to the smaller household survey sample," the BLS said in a press release Friday attached to the jobs report. "Over longer periods, the changes in household and payroll survey employment tend to track more closely."

"The smaller the sample size, the higher the variants," Haugen said. "If you're trying to really track the monthly developments in employment you need to focus mostly on data from the payroll survey."

Haugen explained that one factor that likely led to the 0.3 percentage point drop in this month's unemployment is the fact that people in the 20-24 age group (including college students and people who are often working temporary summer jobs) left the job market this summer earlier than expected.
"In August you had an unusually large decline in employment" among that demographic, he said. Because the BLS does seasonal adjustments for its data, it was primed for a big decline in September, when young people have traditionally left the work force. "What happened was there was a big decline in August and not a decline in September. Because there was no decline [when it was expected] there's a big increase after seasonal adjustment."

"In the [monthly household survey] you occasionally get these large movements because it's based on a relatively small survey," he added. "What we tell people is that you need to wait for additional months of data in order to see what the pattern is."

Emphasis mine.

Haugen admits to properly track monthly developments the focus should be on the payroll survey, which explains why the U6 is still at 14.7 percent. The total unemployment, underemployment and marginally attached number, hasn't gone down.

This largely tracks with what two other economists, John Ryding and Conrad DeQuadros of RDQ Economics, informed James Pethokoukis at AEIdeas:

This report is a tale of two labor markets.  The establishment survey (payrolls) painted a picture of moderately growing employment over the last three months but at a marginally slower pace than over the last year.  At this pace of job creation, the unemployment rate should be barely drifting lower given underlying demographic trends.  In contrast, the household survey painted a picture of a sharply falling unemployment rate—down 1.2% points over the last 12 months.  Such a rapid decline in the unemployment rate would be consistent with 4%–5% real economic growth historically but much of the decline is accounted for by people dropping out of the labor force (over the last year the employment-population ratio has risen to only 58.7% from 58.4%).  We believe part of the drop in the unemployment rate over the last two months is a statistical quirk (the household data show an increase in employment of 873,000 in September, which is completely implausible and likely a result of sampling volatility).  Moreover, declining labor force participation over the last year (resulting in 1.1 million people disappearing from the labor force) accounts for much of the rest of the decline.  With this report, the ISMs, and vehicle sales, the September economy is off to a better-than-expected start but nowhere near as good as suggested by the decline in the unemployment rate.

It is not that the numbers have been manipulated, it is the timing of this report, using the household survey which shows the anomaly and the payroll survey not reflecting the same lowering of unemployment.

This benefits Barack Obama greatly, although it should be noted that there will be one more unemployment report issued a few days before the election.

The reason it benefits Obama and frustrates Conservatives is because people who are not political junkies usually see the top line number on their nightly news but rarely read the reports on household vs payroll surveys or see the U6 numbers and the explanation of the differences, even when confirmed by BLS economists.

 The real question which Conservatives need to ask, isn't about manipulation or timing, but whether 7.8 percent unemployment is anything for Obama to crow about?

  It is now four years later and "official" unemployment is the same now as when Obama took office, 3 1/2 years after Obama's so-called recovery began.

Via BLS - Official Unemployment

January 2009- 7.8% - Unemployment
October 2012- 7.8% - Unemployment

The U6 real unemployment is higher than it was when Obama took office.

Via Portal Seven - U6

January 2009- 14.2% -  U6 Unemployment Rate
October 2012- 14.7% -  U6 Unemployment Rate

Via Bureau of Economic Analysis:

Current Numbers:
  • 2nd quarter 2012: 1.3 percent
  • 1st quarter 2012: 2.0 percent
Quarterly data: Real gross domestic product -- the output of goods and services produced by labor and property located in the United States -- increased at an annual rate of 1.3 percent in the second quarter of 2012 (that is, from the first quarter to the second quarter), according to the "third" estimate released by the Bureau of Economic Analysis. In the first quarter, real GDP increased 2.0 percent.

Are Americans supposed to be satisfied that this is the new normal under Obama?