Under-Lying: The Truth About Jobs Data

9 Mar

Doubtless even here in little ol’ Australia, the economic pimple down on the world’s bum, you will be regaled with news stories heralding the “unexpected” improvement in US employment. That, along with the US stock market index continuing to record all-time highs, may begin to convince you that the GFC is ending, that the world economy is on the up and up, that “She’ll be right mate” … and maybe now is a good time to go out and buy a house debt-slavery commitment to a bank, or something.

Er. Not so fast.

As usual with government statistics – especially increasingly desperate government statistics – there is a whole lot more to the story than the con-fidence inspiring headlines and “expert” talking head commentary.

From Zero Hedge:

The media’s ecstatic read through of today’s Nonfarm payroll beat can barely end: after all, a print of 236,000 on expectations of 165K, why that has to be great. Well, it is. Until one looks to the number from February 2012, which happens to be 271,000.

And even the Keynesians will agree that February follows January, which in 2013 was a downward revised 119,000. January 2012? 311,000. Which in turn happened just as Europe was fixed again – after all who can forget the LTRO euphoria (and what happened after).

In other words, the first two months of 2012 saw a 582,000 increase in non-farm payrolls. In 2013: 355,000. But something else happened between February 29, 2012 and February 28, 2013… Oh yes, the US government issued some $1,198,397,883,967.30 in debt. Oh, and the Fed monetized about half of this amount, and virtually all of the Treasurys issued to the right of the ZIRP period (i.e., risky debt).

Jan + Feb jobs

To summarize: $1.2 trillion in debt buys the US…. 61% of the jobs created a year ago. But at least the Dow Jones is at an all time high.

Who else can hardly contain their excitement at what the jobs number a year from today will reveal that yet another $1.2 trillion in debt will do to the US job market…

The other point to note about the US jobs data is this. The much-quoted unemployment percentage (now 7.7%, allegedly) is essentially determined by two figures.

The number of people out of work.

Divided by…

The total number of people in the “labour force”.

And how is the “labour force” defined?

…everyone of working age, typically above a certain age (around 14 to 16) and below retirement (around 65) who are participating workers, that is people actively employed (either part-time or full-time) or people actively seeking employment. People not counted include people who are not employed and not seeking employment including students, retired people, stay-at-home parents, and people in prisons or similar institutions.

The “participation rate” is a critical component in the headline-grabbing unemployment percentage rate; a key “economic indicator” that politicians claim credit for when it falls, and pass-the-buck when it rises.

The more people who are considered to be not participating – that is, the lower the participation rate –  the easier it is for the government to claim a fall (improvement) in the unemployment rate.

Here is the latest US Federal Reserve chart for the participation rate in the USA:

Screen shot 2013-03-09 at 9.35.22 AM

The US labor force participation rate has been plummeting ever since the GFC began (the last grey vertical line on the chart). Under-lying the latest unemployment figure, some 130,000 dropped out for one reason or another. Typically, having given up looking for a job due to bleak prospects.

So, a key contributor to the “great” US jobs “result” – which Zero Hedge has debunked above – is more people giving up hope of getting a job.

In Australia, the story is somewhat similar. As usual, by comparison with the northern hemisphere, we are simply a little behind their curve:

Screen shot 2013-03-09 at 9.53.23 AM

However, the overall trend is the same:

While the participation rate, the percentage of people either in work or looking for work, for the workforce hit five-year lows of 65.2 per cent by the end of last year…

Our participation rate would be even worse, except for one thing – the number of older Australians who have been forced to try and return to the workforce; doubtless thanks to Australia’s ever rising cost-of-living, and, having seen their retirement nest eggs crushed, first by the GFC stock market crash, then by central banks’ low interest rate policies crushing their returns on “safe” fixed income investments:

A shifting workforce has also seen a record number of seniors in Australia’s jobs market.

a record number of people aged above 65 – 12 per cent – are entering the job market, the Bureau of Statistics data showed.

The average participation rate for those above 60-years-old was also at a record-high of 53.4 per cent.

Screen shot 2013-03-09 at 9.58.29 AM

Another vital trend to note concerning our “shifting workforce”, is that more workers are getting fewer hours of work:

Australians are working an average of 32 hours a week, the lowest in over 30 years, detailed labour force data released by the Bureau of Statistics yesterday show.

But what looks like a reinforcement of a stereotype that Australians are living the good life rather than working hard is instead a reflection of a longer trend away from full-time towards part-time work…

Screen shot 2013-03-09 at 10.11.32 AM

“We know that over the last 12 to 18 months, conditions have been very tough on the economy and activity has been sluggish, especially for the retail sector,” said Commonwealth Securities economist Savanth Sebastian, who pulled the figures together.

“As a result, while businesses are planning for a future turnaround and holding on to key staff, they are trying to maintain a lower cost base and that means cutting hours back, even for some of those full-time workers.”

This is the truth under-lying official jobs and unemployment data.

To tell a headline lie, all that is needed is to massage the truth underneath.

In the case of employment figures, by simply ignoring the increase in “job-creating” public debt … and ignoring all those who have lost hope.

My hat tip to reader Kevin Moore for the following apropos quote:

“Just look at us. Everything is backwards, everything is upside down. Doctors destroy health, lawyers destroy justice, psychiatrists destroy minds, scientists destroy truth, major media destroys information, religions destroy spirituality and governments destroy freedom.”

― Michael Ellner

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