Economics & Research Blog
Ignore the Headline Unemployment 9.4%: This Was a Bad Report
By Dr. Joe Webb
Published: January 7, 2011
The L-shaped recovery continues.
Earlier this week, ADP estimated that payrolls increased
by +297K. Now we know that the ADP report was flaky (as I had warned it might be in a Tweet). Their estimate was about a 3x miss when today's payroll survey from the Bureau of Labor Statistics showed +103K. Not even November's revision from +39K to +71K comes close to making the ADP number good. Remember, the payroll data has a +/- of 129K, so this revision is well within that range.
The 9.4% unemployment rate headline is getting lots of play in the news
, but the internals of the report are rather horrible
. The labor force participation rate dropped from 64.5% to 64.3%, lowest since April 1984. Even though the household survey showed a +297K increase in employment, -260K people left the workforce. The broader measure of unemployment (U-6) was 16.7%. It was better, but it's still rather horrible, and is at the level we were in August. U-6 details are at this BLS page
So if the data are so bad, how does the unemployment rate improve from 9.8% to 9.4%? That's a huge drop, so it should be good news, right? It has to do with the formula for the calculation. First, you divide the number of employed people by the number of people in the labor force. The labor force is the number of people employed plus the number of people actively seeking work. Then you subtract that from 100%. So in this case, the numerator (employed people) went up, but the denominator (the labor force) declined. If the labor force had stayed the same as the prior month, that is, if those 260K people had not left the workforce, the unemployment rate would have been 9.6%.
The economic recovery supposedly began in June 2009
. Since then, real GDP has increased +3.6% (up to Q3-10), but the number of employed workers in the household survey is down by -772K and -0.055% since that time. The U-6 broadest measure of of unemployment (which includes discouraged workers not counted in the labor force) was 16.6% in June 2009 and was 16.7% in this latest report. The labor force participation rate was 65.7% in June 2009, but is now 64.3%.
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NOTE: My next column will be on January 17; I'll post on Twitter (@wtterc
) and in this blog up to that time with the latest economic and industry news.
SEE YOU ON JAN 20?: My next speaking event is on January 20 for Printing Industries of New England at the Sheraton in Framingham, MA. Details are at their site
and everyone gets a free copy of "Disrupting the Future."