Official unemployment rate doesn’t tell the whole story
On Friday, the government is scheduled to report America’s February unemployment rate. Over the past few months, the official employment statistics furnished by The Bureau of Labor Statistics have portrayed an improving jobs picture with 0.9 million jobs added over the September to January period and a decline in the unemployment rate to 8.3 percent in January from 9 percent in September.
As I say in my PowerTrend investment newsletters, I never base my decisions on either a single data point or data solely from one source. Rather, I find it better to compare and contrast data from a number of sources to get a sense for what is really going on. If we do that, we find that not everyone agrees with the official national unemployment rate.
But questionable federal data is far from new news — consider the emphasis on the core consumer price index as an inflation barometer, even though it excludes food and energy, which account for more than 17 percent of a person’s average annual expenditures on a combined basis, according to U.S. Department of Labor data.
The Congressional Budget Office last month (Feb. 16) released its own study on the unemployment situation and its findings reminded us that the unemployment rate has exceeded 8 percent since Feb. 2009. The nonpartisan group forecasts the official unemployment rate will remain above 8 percent through 2014, chiefly because of weak demand for goods and services, coupled with a growing mismatch between employer needs and worker skill sets.
Unlike the official government unemployment rate that only focuses on whether a person is employed or not, the CBO rightly recognized that there are millions of Americans that either have to make do with part-time work rather than full-time employment or would like to work but have not searched for a job in the last four-week period. When this group, more commonly referred to as the underemployed, is factored into the unemployment calculation, the CBO found January’s real unemployment rate stood at 15 percent, not 8.3 percent.
What makes this situation even worse is the share of unemployed people looking for work for more than six months. That segment — the long-term unemployed — topped 40 percent of all those unemployed in December 2009 and has remained above it since.
This methodology of including the underemployed is practiced by a number of third-party firms, such as Gallup, that perform their own monthly unemployment evaluations. In January, Gallup found the percentage of U.S. employees who are working part time but want full-time work stood at 10.1 percent while the number of unemployed stood at 8.6 percent. Add those together and we find the total underemployed and unemployed stood at 18.7 percent in January, which was up from 18.3 percent in December. Not only is the magnitude of the data far different but the direction is also different from that from the Bureau of Labor Statistics.
While many are anticipating Friday’s official February employment report, Gallup has already released its findings for the month. For the 29 days of February, Gallup finds 64.4 percent of its respondents are employed full time while 9.1 percent are unemployed and the combined unemployed and underemployed climbed to 19.1 percent. Payroll processing firm Intuit shared that small businesses added fewer jobs in February than January and the average workweek was little changed at 25 hours. The last time I checked, 25 hours per week was considered part-time.
Intuit’s findings confirm expectations for slower nonfarm private payroll growth in February. While some will quickly point to the month over month improvement depicted by ADP’s take on non-farm job growth in February, some quick analysis using ADP’s data reveals the number of jobs created in the first two months of 2012 fell compared to 2011. For the first two months of 2011, ADP’s findings showed 406,000 non-farm jobs were created compared to 389,000 for the first two months of this year – a contraction of more than 4 percent. Turning to February’s Challenger Job Cuts Report, we find the pace of planned layoffs year to date is up 18 percent over last year, with 105,214 job cuts announced through the first two months, compared to 89,221 during the same period in 2011.
Economists consider unemployment to be a lagging indicator of future economic growth. So, how is job formation, a leading indicator, going? The one-month results aren’t encouraging. Economists and academics are predicting February added 210,000-220,000 jobs compared to 257,000 added in January. As we inch closer to that Friday report, we’ll see the February employment report from the nation’s large payroll processor, ADP, as well as the Challenger Job Cuts report. The latter showed a 28 percent increase in planned job cuts in January from December. For my money, I’ll be watching the labor participation rate, which has been the key driver behind the falling unemployment rate as more people exit the workforce or decide to take a break from searching for work.
All in all, I find it pretty hard for anyone to argue that the unemployment rate has fallen when more than 1.7 million people have exited the labor force for the 12 months ending Jan. 31 and the number of people who are not in the labor force who want a job remained essentially unchanged over that 12-month period.
Politicians may try to distort the facts to suit their own agenda, but the facts are still the facts.