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The Return of NILF

Over the years, we have mentioned on more than one occasion the not-as-dirty-as-it-sounds measure, NILF. No, it has nothing to do with moms -- rather, it stands for Not In Labor Force.

It is one of the reasons the official BLS unemployment rate is actually understating the actual unemployment rate.

A quick primer on how this works: The Unemployment rate is depicted as a percentage, and like all percentages, it is actually a fraction. You take the total number of people in the labor pool, the total number of workers:

Employed Individuals
_________________    =   Percent Employed 

Total Labor Pool

Subtract the percent employed from 100% and you get the unemployment rate.

Most of us think about the unemployment rate going down due to more people getting jobs. But there's also another way the official unemployment rate can go down. It happens when the denominator -- the bottom number of the fraction -- goes down.

And that is what has been occurring again recently. The Labor Pool has shrunk, making the unemployment rate look better than it actually is.   

One of the confirming signs of this is the Temporary help. It declined in May (by almost 9K), indeed, it has been declining for the past six months. These are the first employes to be laid off, and it disputes the so-called tightness or lack of slack int he labor market.

Consider the following from Liscio Report, Philippa Dunne and Doug Henwood via Barron's Alan Abelson:

"Moreover, the so-called household report, which bulls used to gush over until the numbers went south, registered a job gain of only 66,000, after a drop of 70,000 in April. And it also, comment Philippa and Doug, "showed signs of slack developing in the labor market."

There were other indications that far from being tight, as the bulls on the economy contend, the labor market is manifesting some troubling trends. Folks not officially in the labor force but who'd love a job increased by 155,000 to the "highest level since early 2006." That suggests the real unemployment rate is over 5%. And thousands more toilers are working part-time because they can't latch on to full-time jobs."

Like so many other government stats, we remain quite skeptical that the 4.5% unemployment rate corresponds to reality.

>

Source:
Quickie Tour
ALAN ABELSON
UP AND DOWN WALL STREET 
Barron's Monday, June 4, 2007
http://online.barrons.com/article/SB118015926416915717.html

Saturday, June 02, 2007 | 08:16 AM | Permalink | Comments (30) | TrackBack (2)
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Comments

Add to all that falling nominal and real incomes in April, weak real consumption spending in April (+0.2%), falling real spending on goods in April, a further sharp fall in pending home sales, the housing recession getting worse, the mortgage credit crunch getting worse, home prices falling, home equity withdrawal shrinking, gasoline prices rising, a trillion dollars of ARMs being reset this year. Then, in spite of the recovering supply side factors (a rising ISM in manufacturing, some modest increase in capex spending by the corporate sector, consumer confidence holding in spite of lower real incomes and higher gasoline prices), the outlook for the US economy remains weak.

While the consensus expects a significant recovery of growth in Q2 and the rest of 2007, that recovery is conditional on a saving-less, debt-burdened and housing-wealth-shrunk consumer to hold up. While the consensus expects the US consumer to hold up there are now initial indications – starting with falling real incomes, mediocre consumption spending growth and increasingly negative households savings in April – that the US consumer may be on the ropes.

Posted by: Nouriel Roubini | Jun 2, 2007 8:30:31 AM