Unemployment Falls to 9%

The unemployment numbers for October are out, and it’s more of the unrelenting grimness Americans have come to expect from the Obama years. 

The overall “official” unemployment rate ticked down a bit, from 9.1% to 9.0%, while the true unemployment rate – including those who have given up looking for work entirely – dropped from 16.5% to 16.2%.  That’s the U-6 metric, which should be the only one we ever talk about, although it is never highlighted by the media.  You have to dig into Table A-15: Alternative Measures of Labor Underutilization from the Bureau of Labor Statistics to find it.  Actually, even the U-6 measure is cooked, because ever since the Clinton Administration, people who have given up looking for work are dropped from the BLS analysis entirely after one year.

The rest of the unemployment news is unremittingly bad, as the Associated Press reluctantly reports, in an article optimistically entitled “Employers Add 80,000 Jobs in October, Jobless Rate Dips to 9 Percent”:

Hiring slowed in October as employers faced more uncertainty over future economic growth.

The Labor Department says the economy added 80,000 jobs last month, the fewest in four months and below September’s revised total of 158,000. The unemployment rate dipped to 9 percent.

Businesses added 104,000 jobs, below September’s total. Government shed 24,000 jobs.

The report included some positive signs. The government revised August and September’s figures upward by 102,000. Average hourly earnings rose. And the unemployment rate fell for the first time since July, because a separate survey of households showed more people found work.

(Emphasis mine.)  These figures are well below expectations, which were more along the lines of 95,000 to 100,000 jobs added, based on reports from payroll companies.  It’s the kind of weak job growth one would expect from stagnant 2.5% GDP growth, barely enough to keep pace with population growth.  80,000 new jobs is maybe a quarter of the job growth that would be needed to significantly reduce unemployment, and less than a fifth of what we would need to return to Bush-era levels of unemployment.

Of course, if job growth had exceeded expectations, even slightly, that would be the headline.  We’ve already seen the smiley-face headline attached to the AP’s melancholy report.  Let’s have a look at how the other major media outlets chose to headline the news:

Reuters: Jobs Report Hints At Some Improvement.  (This is primarily based on the upward revisions to previous months, which actually makes October look worse, but you only see that kind of arithmetic under Republican presidents.)

CNN: October Jobs Report: Unemployment Rate Dips.  (In the story, CNN uses this curious phrasing to describe the dramatic drop in job creation from last month: “The number of jobs created eased from September, when employers added 158,000 jobs. The jobless rate was 9.1% in September.”)

MSNBC: October Jobs Report Hints At Improvement.  (On the MSNBC main page this morning, the headline reads, “NEW JOBS REPORT OFFERS SOME HOPE TO WORKERS.”  Hope!  And Change!)

ABC: Unemployment Rate Drops to 9 Percent, 80,000 Nonfarm Payroll Jobs Added

CBS: U.S. Unemployment Rate Falls to 9%

Washington Post: Economy Generates 80K Jobs in October, Unemployment Rate Falls to 9 Pct.  (Wow, 80k jobs “generated!”  This economy is just crackling with energy!  Interestingly, the hyperlink to the Post article suggests a less cheerful headline was originally considered: “economy-expected-to-add-only-enough-jobs-to-keep-unemployment-rate-from-rising.”)

For a realistic herald of the feeble October unemployment report, we must turn to… the New York Times.  Their headline reads: “Report Shows a Mere 80,000 Jobs Added in U.S. in October.”  The beginning of the Times report reads: “The United States had another month of mediocre job growth in October, the Labor Department reported Friday.”  Ouch.  Applause for your brutal honesty, Catherine Rampell of the New York Times!

Rampell makes some interesting points in her analysis:

The numbers for August and September were revised upward in Friday’s report, giving economists hope that October job growth may actually have been better than this first estimate suggests.

“We’ve seen this constant pattern of upward revisions,” said John Ryding, chief economist at RDQ Economics. “The government’s initial take on jobs may be underestimating employment growth in October, too.”

While job growth is certainly better than job losses, a gain of 80,000 jobs is barely worth celebrating. That was just about enough to keep up with population growth, so it did not significantly reduce the backlog of 14 million unemployed workers.

Actually, the number of monthly new jobs needed to keep pace with population growth is more like 200,000 this year.  A February 2011 post at ZeroHedge explains why:

According to the traditionally optimistic Congressional Budget Office, the US has to create 121,000 jobs per month in 2011 just to keep pace with population growth. This number declines modestly over the next several years, but still averages 106,000 per month over the next 5 years.

And the kicker is that this number does not account for the 3 million people who are not currently in the workforce that the CBO defines as Potential Workforce. Assuming the inflow of this portion of the population into the workforce over the next three years, it adds an additional 83,000 people that have to be incorporated in the work force.

This means that in 2011, in the “best” case scenario, the monthly NFP number has to be over 200,000 before the unemployment rate is reduced by even one basis point excluding the impact of the BLS’ favorite trick of fudging the labor force participation rate, which we have discussed extensively in the past.

The pattern of perpetual upward revisions is interesting.  As I understand it, this is mostly due to the difficulty in gathering data from businesses and refining the statistical model used by the BLS, which is subject to a lot of tinkering, and uses a number of debatable assumptions.  This is a strong argument for paying more attention to quarterly trends than monthly reports, especially the initial monthly reports, but that’s never going to happen, so we might as well enjoy the statistical roller-coaster ride.