What is the Employment Situation Really Like?

Monday, October 11, 2004 | 01:16 PM

The conventional wisdom about Friday's disappointing Jobs data was that there was a little something in the release for each candidate - weak job creation data was bad for Bush’s campaign, and the low unemployment rate undercut Kerry's argument. This turns out to be a false dichotomy.

Some savvy number crunchers are now looking askance at the unemployment rate. These analysts are arguing that this number dramatically understates how difficult the labor situation actually is. The “incumbent friendly 5.4%” rate is in large part the result of a mathematical sleight of hand. Depending upon which underlying assumption you use, the actual number may be closer to 6.4, 7.2 or 9.4%.

The reason the unemployment rate has stayed so low, these economists argue, is not due to improvements in hiring trends; Instead, people are “dropping out” of the labor force. The measure of this is the “labor participation rate,” and it has fallen to 66% from 67.3%. While that decrease doesn’t appear large, consider it is applied to the over 140 million people in the labor force. That 1.3% drop represents nearly 2 million additional unemployed people who are not showing up in the unemployment rate data.

ISI Group’s Tom Gallagher noted that “if the participation rate was at the older, higher level, then the unemployment rate would be around 7.2%. Even using a 10-year average of participation rate yields a 6.4% unemployment rate."

If that sounds bad, consider what happens when we add the "so-called marginally attached workers and part-timers who really want to be working full time.” Barron's Alan Abelson (quoting the Liscio Report) concluded: counting these marginally attached and part-timers would send the unemployment rate to a formidable 9.4%. “Using history as a guide, [Liscio] reckons that "we're now 9.3 million jobs below where we'd be in a 'normal' recovery."

The shrinking labor force is why we have been enjoying a “deceptively modest unemployment rate.” In a post-bubble environment, job creation is an ongoing structural problem. Thus, these changes cannot be blamed on President Bush - at least not entirely. We questioned whether the Tax Cuts were over-emphasizing the stock market, to the detriment of the broader economy, over a year ago.

That turned out to be fairly prescient: We now see strong corporate profitability combining with anemic job creation to create a range-bound, exigent stock market.

Forget about the Presidential elections for a moment, and consider this: Without organic job creation, any economic recovery is doomed to failure sooner rather than later.

Monday, October 11, 2004 | 01:16 PM | Permalink | Comments (9) | TrackBack (7)
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» What is the Employment Situation Really Like? from BOPnews
The conventional wisdom about Friday's disappointing Jobs data was that there was a little something in the release for each candidate - weak job creation data was bad for Bush’s campaign, and the low unemployment rate undercut Kerry's argument. This... [Read More]

Tracked on Oct 11, 2004 1:22:13 PM

» What is the Employment Situation Really Like? from BOPnews
The conventional wisdom about Friday's disappointing Jobs data was that there was a little something in the release for each candidate - weak job creation data was bad for Bush’s campaign, and the low unemployment rate undercut Kerry's argument. This... [Read More]

Tracked on Oct 11, 2004 1:29:16 PM

» Strong and Getting Stronger for Multi-Millionaires from Just a Bump in the Beltway
The ubiquitous Barry Ritholtz writes today at The Big Picture: What is the Employment Situation Really Like? Some savvy number crunchers are now looking askance at the unemployment rate. These analysts are arguing that this number dramatically understa... [Read More]

Tracked on Oct 11, 2004 2:56:36 PM

» What is the Employment Situation Really Like? from Tech Policy
This is fit to be in the Shrillblog. Barry Ritholtz is really shrill: The shrinking labor force is why we have been enjoying a “deceptively modest unemployment rate.” In a post-bubble environment, job creation is an ongoing structural problem. Thus... [Read More]

Tracked on Oct 12, 2004 10:43:43 AM

» Employment Reality from BOPnews
I have a new column up at Street.com: "Employment Reality Lies Between Poles." For those of you without a subscription, its loosely based on recent comments such as What is the Employment Situation Really Like? and Employment Situation: Worse than... [Read More]

Tracked on Oct 14, 2004 7:01:47 AM

» Employment Reality from BOPnews
I have a new column up at Street.com: "Employment Reality Lies Between Poles." It is a pretty fair and balanced look at the strutural job problems Bush inherited, as well as some of the policies which may have made the... [Read More]

Tracked on Oct 14, 2004 7:04:02 AM

» Employment Reality from BOPnews
I have a new column up at Street.com: "Employment Reality Lies Between Poles." It is a pretty fair and balanced look at the structural job problems Bush inherited, as well as some of his policies which may have made the... [Read More]

Tracked on Oct 14, 2004 7:05:38 AM

Comments

I have a fair chunk of money in the stock market and the manipulations to increase it's prices make me furious. I am someone who believes that there is a "real value" to stocks. It may shift over time from a p/e of 14 to 20, but it may not. I think that any efforts to blow this up when it's fairly high lead to bubbles and thumps. I don't gain anything in the long run. I pay more for stocks, they cost more and the danger is higher. And then there is this plan of inflating the value more by pumping hundreds of bilions more per year from social security is madness. It is using government for wild speculation. And unless I am watchful and can play the game (in which case there are potentially huge profits) it can smash the value of my savings. All those individuals who follow the conservative advice and dump a steady amount into an index fund are being hustled. It is immoral.

So is the lumping of social security with medicare and the deficit to make impossible debts (overwise SS looks ok and fixable if not great) and Greenspans claim that the fed money owed to the fund shouldn't be paid back (putting the burden on wage earners for the national debt) so that the account goes into the red in a dozen years rather than 3 dozen. It is a game. And conscious or not it is designed to suck money away from the hard working and trusting to those who run the tables. And if you question it then you are accused of being anti capitalist and socialist.

Posted by: jen larson | Oct 11, 2004 4:55:55 PM

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