April, 2010

Is The U.S. Employment Situation Improving? Not If You Critically Analyze The Data.

Opening Comments

Over the course of the last 18 months, I have encouraged readers of these commentaries to carefully analyze statistics released by U.S. government agencies as well as private and public businesses. Too often, readers and/or listeners only focus on the headlines and pay little or no attention to the underlying details to determine if the headlines are valid. Always try to remember that "the devil is in the details."

Employment and Unemployment Data Released Monthly by the U.S. Government

One of the areas the readers and/or listeners should critique very carefully are the employment and unemployment data released by the U.S. government on a monthly basis. I say this because the U.S. government realizes that having a secure, good paying job is very important to most Americans and, as a result, wants to present monthly employment and unemployment statistics in the most favorable light. Therefore, the headlines in the newspapers, TV and radio talk shows and/or internet may portray an optimistic scenario whereas a thorough review of the details may say something entirely different.

April, 2010 Employment and Unemployment Data

An excellent example of what I mentioned in the previous paragraph involves all of the fanfare surrounding the April, 2010 employment and unemployment data. The "feel good" guys and gals of the American press (TV, radio, internet, newspapers) constantly emphasized that 290 thousand new jobs were created in April, 2010. The implication of this 290 thousand new jobs creation was that we had "turned the corner" and were on the road to recovery.

Analysis of April, 2010 Jobs Increase of 290 Thousand

Let's first examine the 290 thousand jobs which were supposedly created in April, 2010. The 290 thousand jobs increase includes the following items:

1. 188 thousand of the 290 thousand increase was attributed to a category known as the CES Birth/Death adjustment. This category represents a monthly guess by the government as to how many new jobs were added or lost as a result of small companies being started and/or going out of business. Frankly, I find it impossible to believe, in the current economic climate with small businesses hurting so badly, that any jobs at all could be created in this category. In fact, it would be more believable to me if this number was negative - i.e. that jobs were lost;
   
   
2. 66 thousand of the 290 thousand increase was attributed to hiring temporary workers to conduct the Census. As an aside, 154 thousand people have now been hired to conduct the Census;
   
   
3. lastly, 26 thousand of the 290 thousand increase was attributed to non-Census temporary hiring;
   
   
4. thus, 280 thousand of the 290 thousand jobs increase in April, 2010 resulted from government quesstimates and temporary hiring. Clearly, this shows that there was no employment turnaround in April, 2010.
   
   

Initial (new) jobless claims averaged about 450 thousand per week for April, 2010 or a total of about 1.8 million for the month. If 1.8 million new people were added to the unemployment rolls in April, 2010, how can the government report that 290 thousand jobs were created in that month? Clearly, there is a huge discrepancy in what is being reported.

The Conference Board's March, 2010 newspaper help-wanted advertising, which leads April, 2010 employment, fell for the first time in six months, matching the record low reading set in 2009. Based on this information from a non-government agency, it doesn't seem possible that 290 thousand new jobs could have been added in April, 2010.

Different Types of Unemployment Rates

There are three different types of unemployment rates which are available on a monthly basis and they are as follows:

1. U-3
   This rate is released by the U.S. government and is the rate most Americans are familiar with. It presents the unemployment picture in the best possible light;
   
   
2. U-6
   This rate is also released by the U.S. government. It includes part-time workers who are seeking full-time employment as well as discouraged workers (i.e. workers who want to work full-time, have looked for full-time work in the past but are not currently looking for work). The news media seldom mentions the U-6 rate because it is usually more than double the U-3 rate and might tend to alarm Americans;
   
   
3. SGS
   This rate is released by a private source. It eliminates all of the massaging of the figures done by the U. S. government and, in my opinion, presents the most realistic picture of the unemployment situation.
   
   

Trends in Unemployment Rates

Month/Year	U-3	U-6	SGS
Dec, 2008	7.2%	13.5%	17.5%
Jan, 2009	7.6	13.9	18.0
Feb, 2009	8.1	14.8	19.1
Mar, 2009	8.5	15.6	19.8
Apr, 2009	8.9	15.8	20.0
May, 2009	9.4	16.4	20.5
Jun, 2009	9.5	16.5	20.6
Jul, 2009	9.4	16.8	20.6
Aug, 2009	9.7	16.8	21.1
Sep, 2009	9.8	17.0	21.4
Oct, 2009	10.2	17.5	22.1
Nov, 2009	10.0	17.2	21.8
Dec, 2009	10.0	17.3	21.9
Jan, 2010	9.7	16.5	21.2
Feb, 2010	9.7	16.8	21.6
Mar, 2010	9.7	16.9	21.7
Apr, 2010	9.9	17.1	22.0

Now, I ask you. Do you see any meaningful improvement in the employment picture after scanning the table above?

Concluding Thoughts

Don't listen to the cheerleaders who are trying to convince Americans that we are rebounding. We are not rebounding and things are likely to get a lot worse before they get better.

In closing, I'd like to leave you with the following words of W. Lance Bennett, an American professor of political science: