More Mediocre Jobs News

The markets reacted badly to the jobs report released yesterday, but I think that there was a bit of an overreaction. Why? It was really more of the same, even though unemployment ticked up to 8.2%, and there was little job growth; I think that the mild winter is skewing the seasonally adjusted statistics, so we don't know for sure what is going on. So I turn to my favorite picture, the 10 year trend in labor force participation rate:

What we are seeing is a continuation of the same trend that's been in progress since January 2009, steady decline in the percent of people working who are over 16. The uptick may turn out to be good news, but absent other factors, I doubt it. Regardless, the country has a real issue with employment that is burdening every level of government and the economy as a whole; namely a smaller proportion of adults are working. Hopefully, the slight uptick is the start of a turn around, but only time will tell; visually the trend looks unchanged at this point.

Today's Jobs Numbers - Fewer People are Working

The President said that the economic recovery is speeding up, based on the reported jump in jobs created and a dropping unemployment rate. “The recovery is speeding up,” he said, and to keep it going, he argued, Congress must pass a package that would extend the payroll tax cut and continue unemployment benefits. As if those are really the causes of economic growth.

However, looking at the detailed BLS data and tax data reveals a less flattering picture. First and foremost, the labor participation rate dropped again, from 64.0% to 63.7%. I stopped trusting the official unemployment figures some time ago, but I have started to think the statistic is irrelevant. No matter how you slice it, there are fewer people working to produce goods and services to support the entire economy. Here is a ten year snapshot.




Some of the trend may come from retiring boomers, but I submit that they wouldn't be leaving the work force so quickly we had recovered more quickly from the recession. The youngest boomer is only 66, so retiring boomers can't really explain this graph.

My other reason for unease despite the cheery news is that I don't trust the seasonal adjustment, which appears to account for all of the good news. If you read the BLS press release closely, look at how they use the term. From the TrimTabs Money Blog:

The BLS each month reports two data series, but only one jobs number is reported by the media. Actual jobs outstanding, not seasonally adjusted, are down 2.9 million over the past two months. It is only after seasonal adjustments – made at the sole discretion of the Bureau of Labor Statistics economists that 2.9 million less jobs gets translated into 446,000 new seasonally adjusted jobs for January and December.

Looking at Table B-1 of today's release reveals that total employment, without adjustment, declined from 132,952,000 to 130,263,000. If seasonal adjustment is overstated because of the mild winter then the touted job creation could be very misleading.

Corporate profits are in good shape, so we might actually get a recovery going soon. But to think today's statistics are really good news is a mistake. By the way corporate tax receipts are way down, despite profits being up, because of a tax break for investment. Corporations were given the opportunity to accelerate depreciation on capital investments. Just one more loophole that forces us to keep the base rate high, but we still end up with insufficient revenue. Closing question, did corporations spend big on labor saving equipment that in turn kept unemployment high due to this loophole?