Sunday, January 8, 2012

Non-Farm Payrolls: The TRUTH And The CON In Confidence

As 2012 does the inglorious "race for the White House".  Woe is the year of nonsense we are about to be forced to endure.  And, why not begin the year with a VERY heavy dose of bullshit care of the monthly non-farm payrolls report!

Before looking at the December "jobs report", let us do a little math with some of the recent "jobs data" that is being reported by the ever vigilant mainstream media as "good for the economy", and a "sign of growth".

Every Thursday, the Employment and Training Administration of the Department of Labor reports "initial jobless claims" for the nation.  An "initial jobless claim" is when somebody applies for unemployment benefits for the first time.  Initial jobless claims measure the number of filings for state jobless benefits. This report provides a timely, but often misleading, indicator of the direction of the economy, with increases (decreases) in claims potential signalling slowing (accelerating) job growth. On a week-to-week basis, claims are quite volatile, and many analysts therefore track a four week moving average to get a better sense of the underlying trend.

According to the Jan5, 2012 UNEMPLOYMENT INSURANCE WEEKLY CLAIMS REPORT, the 4-week moving average was 373,250.  Using the back of a napkin and just this US Department of Labor reported 4-week moving average of "first time claims for unemployment", 1,493,000 Americans filed for unemployment benefits the past month.

This sorry statistic was broadly portrayed by the news media as being hugely positive:

US Initial Jobless Claims Fell 15000 to 372000 -Washington Post

Initial jobless claims fall to lowest level since 2008  -Chicago Tribune

Lowest level since 2008?  What wonderful news!  After almost four years, there has been virtually no improvement in first time claims for unemployment...not to mention the fact that 1.5 MILLION Americans filed a claim for unemployment in the last four weeks alone.  Oh yes, what wonderful news!

On the first Friday of every month, the U.S. Bureau of Labor Statistics releases the "non-farm payroll" report: A statistic researched, recorded and reportedly representing the total number of paid U.S. workers of any business, excluding the following employees:

- general government employees
- private household employees
- employees of nonprofit organizations that provide assistance to individuals
- farm employees

According to Investopedia, The total non-farm payroll report accounts for approximately 80% of the workers who produce the entire gross domestic product of the United States, and is used to assist government policy makers and economists determine the current state of the economy and predict future levels of economic activity. 

On Friday January 6, 2012 we were treated to the latest US non-farm payrolls as reported, and portrayed "positively", by the the US news media:

U.S. gains 200,000 jobs in December
Unemployment rate falls for fourth month in a row to 8.5%

US Non-farm payrolls and private payrolls have sharply surpassed market expectations, with the US unemployment rate hitting its lowest level ...

Wow!  200,000 "new" jobs!  Joy, Joy, Joy for those looking for jobs...  Hey wait a minute!  1.5 MILLION Americans filed first time unemployment claims in the past four weeks according to statistics released by the US Department of Labor on Thursday Jan 5.  Sounds to me like 1.3 MILLION Americans got a rock in their Christmas stocking.  Why all the joy in mainstream mediaville?

Thankfully the reporting on the nonfarm payroll numbers from Zero Hedge was a bit more levelheaded and honest...because the TRUTH hurts:

NFP Payrolls At 200K, Expected At 155K; Unemployment Rate Drops To 8.5%, Labor Force Participation At Lowest Since 1984
The nonfarm payroll number prints at 200K on expectations of 155K. The Unemployment rate comes at 8.5% - lowest since February 2009, and down from an upward revised 8.7%. U-6 15.2% down from 15.6% in November. Average hourly earnings rose at 0.2%, in line with expectations, previous revised to -0.1% from unchanged. Private payrolls +212L vs Expectations of 178K. Manufacturing payrolls rose 23K vs Expectations of 155K. Yet the unemployment rate trickery still continues, with labor force participation (prior revised), now at a 27 year low of 64%, and the labor force itself declined by 50K from 153,937 to 153,887. In fact, persons not in the labor force have increased by 7.5 million since January 2007! Bottom line - dropping out of labor statistics is the new killing it.

Average Duration Of Unemployment: Second Highest Ever At 40.8 Week
The NFP report confirms the picture we have all known to grow and love - the people "entering" the labor force are temp workers, those with marginal job skills, and making the lowest wages. For everyone else: better luck elsewhere: the number of people not in the labor force has soared by 7.5 million since January 2007, and the average duration of unemployment is 40.8 weeks - essentially in line with last month's record 40.9. Bottom line - if you are out of a job, you are out of a job unless you are willing to trade down to an entry level "temp-like" position with virtually no benefits or job security.

Massive Beat? Not So Fast - Morgan Stanley Warns 42,000 "Jobs" Bogus Due To Seasonal Quirk
Enamored with the 200,000 number? Don't be - the reason why the market has basically yawned at this BLS data is that as Morgan Stanley's David Greenlaw reports, 42,000 of the 200,000 is basically a seasonal quirk, which will be given back next month, meaning the true adjusted number is 158,000, essentially right on top of the expectation. From David Greenlaw: "some of the strength in this report should be discounted because of an seasonal quirk in the courier category of payrolls (Fed-ex, UPS, etc).  Jobs in this sector jumped 42,000 in December, repeating a pattern seen in 2009 and 2010 (see attached figure).  We should see a payback in next month's report."

 Real Jobless Rate Is 11.4% With Realistic Labor Force Participation Rate
One does not need to be a rocket scientist to grasp the fudging the BLS has been doing every month for years now in order to bring the unemployment rate lower: the BLS constantly lowers the labor force participation rate as more and more people "drop out" of the labor force for one reason or another. While there is some floating speculation that this is due to early retirement, this is completely counterfactual when one also considers the overall rise in the general civilian non institutional population. In order to back out this fudge we are redoing an analysis we did first back in August 2010, which shows what the real unemployment rate would be using a realistic labor force participation rate. To get that we used the average rate since 1980, or ever since the great moderation began. As it happens, this long-term average is 65.8% (chart 1). We then apply this participation rate to the civilian noninstitutional population to get what an "implied" labor force number is, and additionally calculate the implied unemployed using this more realistic labor force. We then show the difference between the reported and implied unemployed (chart 2). Finally, we calculate the jobless rate using this new implied data. It won't surprise anyone that as of December, the real implied unemployment rate was 11.4% (final chart) - basically where it has been ever since 2009 - and at 2.9% delta to reported, represents the widest divergence to reported data since the early 1980s. And because we know this will be the next question, extending this lunacy, America will officially have no unemployed, when the Labor Force Participation rate hits 58.5%, which should be just before the presidential election.

WOW!  Just like magic the unemployed will disappear just in time for a presidential election...amazing.  What I find truly fascinating is that, in America, you can be unemployed, but not counted as unemployed because you are not looking for work OR collecting an unemployment check.  Seriously...ONLY IN AMERICA!

Labor participation rate?

According to the U.S. Bureau of Labor Statistics, the labor force participation rate is the "share of the population 16 years and older working or seeking work."

According to the site, the formula for determining the "labor force participation rate" is:
(Civilian Labor Force / Total Non-institutionalized Civilian Population) x 100

Ok - this may be a bit confusing, so let's explain these terms a bit.

First off, what is the "total non-institutionalized civilian population"?

This is the total population minus a few key groups, including:

-kids under the age of 16
-people in prisons or other institutions
-military personnel

Ok - now what is the "civilian labor force"?

This group consists of people who are classified as being either employed or unemployed.

A key item to note - you have to be actively looking for a job in order to be considered "unemployed".

So, for instance, a woman who stays at home with her kids is not considered as being employed or unemployed.

Or, students or people who have retired early are not considered to be employed or unemployed as well.

So, again, in order to get the "labor force participation rate", we have to divide:

The Civilian Labor Force by The Total Non-Institutionalized Population and then multiply by 100.

The labor force participation rate has hovered around 65-67 over the past decade or so. It is currently sitting at 65.5.

The rate has increased dramatically over the past 50 years or so due to more women entering the workforce.

For comparison's sake, the labor force participation rate was around 58-59 in the late '40s.

Source: Bureau of Labor Statistics
So by not counting the unemployed who are not actively looking for work [maybe because there are no jobs to look for] the US Government can create the illusion that the unemployment rate is falling, and boost the "confidence" of those actually looking for work.  Is this brilliant or what?

Jim Sinclair’s Commentary
This is the real story behind today’s job gains report. For additional details see:
- Seasonal-Adjustment Problems Spiked Jobs Growth,  Seasonal- Adjustment Revisions Artificially Lowered Unemployment Rates
-  December Jobs Reading Remained Well Below Pre-2007 and Pre-2001 Recession Levels
- December Unemployment: 8.5% (U.3), 15.2% (U.6), 22.4% (SGS)
- Money Supply M3 Annual Growth Tops 3.0% for First Time in 28 Months

U.S. Non-Farm Payrolls: The Statistical Illusion Of Jobs

The Employment Report for December 2011 was released today with a glowing press release from the BLS (Bureau of Labor Statistics). The highlight of the report was the 42,000 courier and messengers jobs created last month and the claim that the unemployment rate fell to 8.5%.

Statistics can easily be manipulated and it is not unknown for political regimes to do so in order to hold on to power (and 2012 is an election year in the U.S.). After all, it is much easier to change a number than to fix the underlying problem the number represents. Fortunately, the BLS publishes a number of statistical tables with each monthly report that can be used to check its calculations.

When the Great Recession began in December 2007, the civilian non-institutional population of the United States was 189,993,000. At that time, the number of people in the U.S. labor force was 125,588,000. As of December 2011, the BLS states that the employment population ratio for the U.S. is 58.5% (0.585). The non-institutional population of the U.S. was reported at 193,682,000 or 3,689,000 higher than it was in December 2007. The labor force in December 2007 was 125,334,000 and multiplying the increase in the U.S. population in the intervening four years by the employment population ratio indicates that the labor force should have increased by 2,158,000 to 127,492,000. However, the BLS reports the U.S. labor force last month was 124,114,000. More than three million people are missing from its figures.

The smaller the labor force is, the better the headline unemployment rate becomes. The BLS claims these 3 million plus people left the labor force and this justifies purging them from the statistics. There is a problem with their line of reasoning, however. Large numbers of people only leave a labor force during periods of severe economic distress. It does not happen during economic recovery. It does not indicate an employment situation that is improving. Yet, the BLS produces numbers showing things are getting better when this happens. This violates the first rule of statistics - the results must reflect reality. The BLS numbers do not.

Dividing the number of employed in December 2011 by the size of the labor force that should exist based on the population numbers produces an unemployment rate of 9.6%, not 8.5%. This is the headline number that should be reported. If the BLS wants to insist however that more than three million people have indeed left the labor force (and this has continued in the last year - the size of the labor force in December 2011 is smaller than it was in December 2010), it should also make it clear that this indicates that there has been an ongoing recession and no economic recovery has taken place. Both can't happen at the same time, except for a brief period. Either the economic recovery story is a lie or there hasn't been a shrinking labor force.

While mainstream economists will insist that employment is a lagging indicator (more than two years is some lag), this has only been the case in the U.S. years after statistical "improvements" were introduced in the 1980s and 1990s in how government economic numbers were determined. Before that, employment recovered with improving GDP as should be the case. If you think about it, the term jobless recovery makes as much sense as tall midget or genius moron.

The improvement in the weekly unemployment claims is also being cited as evidence of an improving jobs picture. It would be more accurate to say that it is evidence of a jobs picture that can't continue to get worse. As I have stated since at least mid-2010, the weekly claims number will regress toward the mean (move to its long-term average) because eventually there will be few workers who remain to be laid off. After being elevated for several years, the only way that weekly claims can now increase is with a big jump in bankruptcies. This will be avoided as long as the economy holds steady.

What is keeping the U.S. economy from getting worse is the unprecedented budget deficits that the U.S. is running. If you spend an extra $1.3 trillion dollars that you don't have as the U.S. did in 2011, this will certainly stimulate the economy in the short-term since much of this money winds up in consumer pockets and they spend it. According to the non-farm payrolls report for December, the U.S. is not exactly getting good value for this money. Unless of course, you think low-paying courier and messenger jobs should be the cornerstone of the economy.

Thank you  for that excellent summation of the farce behind the weekly "initial claims for unemployment" and the monthly "non-farm payrolls" reports.  These reports are pure BULLSHIT regurgitated by the US Labor Department and the US Bureau of Labor Statistics for consumption by the mainstream news media in their never ending effort to dismiss the TRUTH.

Because Americans can't handle the TRUTH.

There's lies, and then their is believing your own lies:

Strong data damps Fed need to buy bonds: Bullard
(Reuters) - Signs the recovery is gaining strength suggest the Federal Reserve may not need to buy any more bonds to spur growth, a top policymaker said on Saturday.

"I don't think it's very likely right now because the tone of the data has been pretty strong" through the end of 2011 and up to now, St. Louis Fed President James Bullard told reporters after a speech at an economics conference. "We can probably wait and see for now."

The Federal Reserve cut benchmark rates to near zero more than three years ago and has bought $2.3 trillion in bonds to boost growth.

While the Fed has left the door open to further accommodation, the U.S. economy has shown signs of accelerating growth in recent months, leaving many to wonder whether the central bank needs to do any more.

Adding to a sense of pickup, the government said on Friday that employers added 200,000 jobs in December and the unemployment rate eased to 8.5 percent, near a three-year low.

Bullard's comments show a Fed still divided over the need for more accommodation to ensure a soft recovery does not dissipate or wilt due to an outside shock such as an intensification of the European debt crisis. Several Fed officials have urged another round of buying mortgage-backed securities to shore up the depressed housing market, including Boston Fed President Eric Rosengren in a speech on Friday.

I, personally, am completely fed up with the steady stream of lies and the "confidence" building that spews forth daily from the US Government data vendors.  Aren't you?

NEVER FORGET:  The fist three letters of the word confidence spell "CON".

Today's politicians and mainstream media talking heads are little more than confidence men.  You know what I mean?  

They're are bunch of CON MEN!

1 comment:

  1. excellent commentary indeed! on the significant manipulation of statistics to manage and control perceptions of the irreversible economic debacle. i really need to spend more time here. the most concise and detailed explanation outside of an expensive subscription to shadow stats. kudos, Greg.