Unemployment Rate Drop: Their Playing With The Numbers Here; Don't Be Fooled

The White House got a boost today from the Bureau of Labor Statistics, which released moderately Positive?, jobs data for November and revised its October and September numbers higher, pushing the official unemployment rate down to 8.6% from 9%, the lowest level in two years.

Here's the Disclaimer: There are roughly 3.9 million LESS jods to be had here in America since the economic recovery of 2009.

The new number resurrects the possibility of unemployment dropping below 8% by election day, the threshold below which Obama’s chances for a second term improve dramatically, if conventional political wisdom is correct. Even the impression of improvement may be enough to boost Obama’s reelection chances, and the spike in consumer confidence earlier this week suggests the trend may be heading that way.

Here's another Disclaimer:  Much of November’s improvement in unemployment came from the fact that the pool of people looking for work dropped sharply as 315,000 Americans left the labor force. The revisions of past months suggest that BLS is missing something. The BLS uses two surveys to gauge the state of employment in America: the payroll survey and the household survey, which canvass homes and businesses separately. The payroll survey gets revised twice as new receipts data and other figures come in. I don't care what anyone say; these figures just don't make sense

Graduates to unemployment

 Employers added 140,000 jobs across most private sectors in November, offsetting continued declines in government employment. Public employee rolls dropped by 20,000, the 10th time in 11 months that state and local government employment has shrunk.

Here’s where they slip up;  The battered construction sector saw payrolls fall 12,000 after losing 15,000 jobs in October. 120,000 jobs were created in November but it takes upwards of 100,000 simply to which is enough to keep the unemployment rate from going up. 

This number of new jobs is not enough by itself to absorb all the new workers trying to entering the labor force and reduce the fraction of people that are currently unemployed. Fuzzy math problem; if  315.000 people stopped looking for work in November and 120.000 jobs were created minus 177.000 jobs lost for the month of November, Then "How is the unemployment rate dropping?" couple that with that 3.9 million jobs gone for good. Do you see it now?

Still, the shadow of the unresolved crisis in Europe continues to hang over the U.S. recovery. If the E.U. fails next Friday to deliver on hints of tighter integration of fiscal and monetary controls, the markets will tank, and rates for borrowing for European banks will spike, increasing the likelihood of a major bank failure. That could become the “Lehman Event” triggering another global credit crisis and potential recessions worldwide.

A new Rutgers University study shows that only 7% of those who lost jobs after the financial crisis have returned to or improved upon their previous financial position and lifestyle. The vast majority in the study's survey say that have diminished lifestyles, with about 15% saying they have seen drastic reductions in their incomes.

And those with less education saw more job losses during the downturn. Even those who landed a job made significantly less than before the Great Recession.

Government workers are getting the boot.

Employees of local and state governments probably have the least reason to celebrate. Whichever direction the unemployment rate moves seems almost irrelevant for them, as governments grapple to close budget gaps and shed workers. In November, the downward trend continued as the public sector lost 20,000 jobs – 5,000 of which came from the U.S. Post Service.

Consider this fact, this rate of job growth is barely enough to keep up with the growth in the working-age population. So we’re not making progress on the backlog of more than 13 million jobless Americans, and another 11 million working part-time who’d rather have full-time jobs.

Retail jobs constituted a third of new private-sector employment in November. Retail jobs tend to be unstable, temporary, and low-paying. Although the BLS is supposed to adjust for seasonal employment (i.e. Christmas), it doesn’t take account of the fact that more and more Americans have been pushing up their Christmas buying to before Thanksgiving. So some of these jobs may not be around very long.

Hourly earnings are down, as are real wages. So to some extent Americans have been substituting lower wages for lost jobs – either by accepting lower wages at their current place of employment, or getting the boot and settling for lower wages elsewhere. A job is better than no job, of course, but a job with a lower wage isn’t nearly as good as a job with at the same or better wage.

Another reason for November’s job growth is that American consumers – whose spending accounts for about 70 percent of the economy – increased their spending. But this can’t continue because, as noted, wages are dropping. They spent more by cutting into their meager savings. Don’t expect this to last.

Finally, there’s the wild card of the rest of the global economy – the European debt crisis and the high likelihood of recession in Europe, the slowdown in China and India, slower growth in developing nations. Some of our jobs depend on exports, which will drop. Others are keyed to the financial sector, which is being hit directly.

champagne For One

Two final wild cards closer to home: The Fed, and Congress. The Fed meets in two weeks to decide on further monetary easing. With today’s report, the odds of easing are down, unfortunately. Believe it or not, several Fed members are worried about inflation.

And if Congress refuses to extend the payroll tax cut and/or unemployment benefits by December 30, it will create another drag on the economy. When people ask me what Congress is likely to do I always say the same thing: The odds are in favor of nothing.

So while today’s jobs report is in the right direction, it’s way too early to break out the champagne.