Jobs jobs jobs
[This post by Pitupohis just set a record for the numeber of recs on my board on the FOL by a huge margin. Some of it is tabular and I do not have the time to make it look righ. Here is a lot of it along with a link.
boards.fool.com - mish]
AN ANALYSIS OF EMPLOYMENT DATA -- JANUARY 1, 2001 - MAY 30, 2004
Brave New World
I cannot remember a time in my lifetime when there was as much skepticism about government supplied data. Not that the data has ever been all that reliable, but increasingly it seems that the government, particularly the Department of Labor's Bureau of Labor Statistics (BLS), has abrogated their charge to inform the financial community and instead now seems to think that their role is to placate, to assuage, to keep the natives calm, or as Aldous Huxley might say: to supply the populace with their happy drug, their soma. With millions of people on Prozac and other anti-depressives these days, maybe that analogy is not so metaphorical.
The employment data are a case in point: A casual observer would have no reason to doubt that the U.S. is in the midst of an absolute employment boom. Certainly that (boom) premise is explicitly expressed in the public statements of the Secretary of Labor: "I'm pleased to see strong job growth, and that's what I am concerned about," Labor Secretary Elaine Chao said in an interview. "Every month of strong job growth is good news to me and it's good news for America."
But has there really been "strong job growth?" Let's take a hard look at the data and see if we can answer that question.
Employment versus Unemployment
An in-depth analysis of the government supplied data don't seem to support the conclusion of strong job growth. But don't take my word for it: The Employed, 16 and Over series from The Household Survey (Appendix 1), tells us that from the lowest employment month in recent history, November 2001, until the most current month for which data are available, that employment has increased from 136.2 million to 138. 8 million, an increase of 2.6 million jobs. Or, if you choose to look at the Establishment Survey, from which the "non-farm" payrolls number (Appendix 2) that is released each month is derived, and again measure from the lowest employment month in recent history, employment has increased from 129.8 million in August 2003 to 131.2 most recently, an increase of 1.3 million jobs. Now that's strong job growth...isn't it? The government would prefer that you don't think about that question too long and definitely don't look at the rest of their data - afterall, curiosity killed the cat an' all - oh well, I'll take my chances, and I'll hope you'll try to follow my analysis.
To determine if an increase of 2.6 million jobs in almost 3 years or 1.3 million jobs in 9 months is "strong" job growth we have to take a look at some of the other data beginning with the number of people that are still unemployed: From Household Survey - Unemployed, 16 and Over (Appendix 3), looking at that same time frame (November 2001 - May 2004), which puts "job growth" in the most favorable light, you will see that while 2.6 jobs have been added (the BLS and the administration like to say "created"), the number of unemployed has actually increased by 200,000.. Even in the May 2004, when the headline screamed, "248,000 JOBS ADDED IN MAY!", unemployment actually increased by 49,000 jobs.
And heaven forbid that we might take an even more critical look at the data, such as looking at job "growth" and/or unemployment growth (that's right,UNemployment growth) since, say, January 2001, because then we would see that the number of jobs added since January 2001 is........ooops, I guess that should say "jobs lost" - 1.2 million fewer workers on the non-farm payroll and a whopping 2.2 million more workers UNEMPLOYED in May 2004 than in January 2001
Is that strong job growth? You decide.
The Civilain Labor Force and the Participation Rate
And most of the workers that have come off of the unemployed rolls over the last year have done so because of a declining Civilian Labor Force (Appendix 4). - that is, many job seekers are supposedly no longer seeking work and therefore they are not counted as unemployed. Dividing the Civilian Labor Force by the Civilian Noninstitutional Population gives up the Participation Rate. Between November 2003 and May 2004, the BLS is telling us that the Civilian Labor force shrunk by 213,000 workers and that the Participation Rate has decreased from 67.2% in January 2001 to 65.9% most recently.
So I ask you again, is that strong job growth?
Population Growth
And are these data as wildly contradictory as they seem, with "strong" non-farm payroll increases coincident with rising unemployment? Yes and no. First, let me explain why, to some degree, the data are not contradictory: One reason that increasing unemployment might not be contradicted by data that shows job growth is really rather simple and can be summarized in two words: Population growth.
To analyze population growth you might want to look at two series: The Total Civilian Noninstitutional Population (Appendix 6) (which is the series that the BLS uses to compute such things as the Participation Rate) and the Total Population Including Armed Forces Overseas (Appendix 7). Similar growth numbers can be derived from either series but let's look at the series that BLS uses. Again, to be fair and consistent, let's look at the November '01 - May '04 time frame that puts job growth the best possible light: The U.S. Noninstitutional Population has grown from 216.1 million in November '01 to 223 million in May of this year. So while Elaine Chao would like us to focus on the fact that 2.6 million jobs have been added according to the Household Survey, she definitely is not going to mention the fact that the U.S. population has grown by 6.9 million people or 230, 000/month in that same time frame.
To be completely fair, I should point out that some demographic analysis is necessary to determine what portion of the increasing population would actually be participating in the work force. If we assume that the participation rate for the new arrivals is the same as that for the existing population (which, I believe, IS the BLS assumption), then 65.9% or 4.5 million of the new arrivals would be looking for jobs. So, by the rosiest estimates there are 2.6 million jobs created since November 2001 for the 4.5 million people that need jobs. That also comes to exactly 150,000 new jobs needed per month just to stay even - that is, for zero job growth. And even with all of these new workers being added, still, as noted above, while the population was growing by 230K/month, the Civilian Labor Force shrunk by 213K jobs since November '03 removing many workers from the official ranks of the unemployed. (And I should note here that while only 4.5 million of the 7 million new arrivals are looking for work, ALL of them are creating a greater strain on limited resources - but that is the subject of another post.)
A Brave New Procedure - The Business Birth/Death Model
So you see, you can have job "growth" and rising unemployment - up to a point . If jobs appear to be growing at a rate of greater than 150,000 jobs per month and still unemployment is growing AND the unemployment rate (Appendix 8) is staying even or going up - then, mission contol, we have a problem. And some of the jobs data released over the past few months simply does not compute. Look at the most recent release for instance. Supposedly, 248,000 jobs were "created" in May and yet there were more unemployed people in May than there were in April. Huh? Often, when that type of discrepancy arises, you can look for the answer in the Participation Rate. And often the Participation Rate will rise - formerly discouraged job seekers once again start looking for work - when the job market gets better. But the Participation Rate has held steady since February. So where is the the discrepancy?
As previously reported on this board, and hardly anywhere else, the BLS has implemented a new procedure, the "Business Birth/Death Model" (Appendix 9), which is responsible adding 412,000 jobs this year, 733,000 since February, and is responsible for creating 1.1 million jobs out of thin air since it's implementation in April of 2003. The BLS reported that non-farm payrolls only increased by 1.3 million total jobs in that time frame - so the Business Birth/Death Model has accounted for all but 200,000 or 85% of the reported job increases in the last 13 months. So if the numbers don't seem to add up, there is a simple explanation: THEY DON'T ADD UP.
Let's look at this another way: If this was 2002 or 1999 or 1956 and we had identical performance in the job market, we would not be celebrating "job growth" at all - we would be lamenting terrible JOB LOSSES. Does this seem right or logical to anyone that virtually ALL of the reported job growth in the last year is due to a new procedure and that never before in history would we have considered this job market performance good???
Conclusions
When I started the process of researching these data to produce this article, I really thought I was going to find some evidence of job growth. Even I am surprised at just how horrid the job picture really is. If you are looking at the job market as evidence of an improving economy, I think you should heed this WARNING: I am firmly convinced that the job data are providing virtually NO EVIDENCE of a growing economy at this point. I should also add that I am not implying malicious manipulation of the data. The data are what they are. Most people just look at the headlines and miss the real story.
So what does this mean for investors. I wish I knew. Maybe the economy does gain more and more traction and we begin to see some REAL job growth. Maybe the stock markets will correctly anticipate that growth. Most main stream economist, virtually everyone you hear on CNBC, is parroting that mantra. Even on this board, the consensus seems to be that equities are going to go up for awhile before reality sets in - even MrPlunger is talking about a growth theme and I've learned to listen when MrP speaks. And there are some other signs of "recovery", though I find it odd that we are talking about "recovery" almost 3 years after one negative growth quarter...and don't get me started on the GDP data. Even if everything that the growth story is based on is all smoke and mirrors, I'm sure you've heard the old adage that goes something like "the markets can stay irrational for longer than you can stay solvent." And of course, you've got the Fed factor which has been the engine of "growth" for the last three years, though if you ask me, that type of growth is somewhat akin to making a deposit into your brokerage account with your credit card. But the Fed has been on a money creation/debt monetization rampage, unprecedented even for this Fed, over the last couple of months, and last spring I learned an important lesson about fighting the Fed and I'm not going to make that mistake again. My investment choices could be wrong, but I'm getting up in years and can't afford to take a lot of chances so I'm pretty much fully hedged but I'm giving NO advice in that regard....just be careful out there... |
