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Unemployment Seasonal Aberration?

In our relentless attempt to get at the Truth, we often spill pixels showing how government data makes things appear rosier than they are in the real world.

This morning's data may have made things appear worse.

Providing a glimmer of hope that the U-3 unemployment rate isn't as bad as it appears, an unexpected surge in teenagers and 20-25 year olds is responsible for a chunk of the unemployment jump.

Also possible -- a seasonal adjustment that was expected in June failed to pick up more teens applying for jobs in May. Rex Nutting of Marketwatch notes that some of this is "Statistical noise":

"The government cautioned that the scope of the increase in the unemployment rate in May could be a statistical distortion. Month-to-month changes from April through July can be hard to adjust seasonally.

"There is a substantial flow of workers, particularly young workers, into the labor force during these months," said Phillip Rones, deputy commissioner of the Bureau of Labor Statistics. The unemployment rate for teenagers surged to 18.7% from 15.4%. A broader measure of unemployment that includes so-called discouraged workers rose to 9.7% in May from 9.2%.     

Here's a chart of teen workers employment:
click for bigger chart

via Jake

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UPDATE June 6, 2008 11:07am

Real Time Economics notes two factors -- the first being the jump in Teen unemployment; the second factor being a catch up to already existing employment pressure. Morgan Stanley, Nomura Securities, and Insight Economics all noted that the "unusually large increase" may have exaggerated the deterioration in the unemployment rate that occurred for last month, but "probably reflects the weakness that has developed since the end of last year."

Insight Economics adds that "In the post World War II period, every time the unemployment rate has jumped by a full percentage point in the course of a year, the economy has slipped into recession."

That is consistent with my economic perspective.

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Source:
Jobless rate soars to 5.5% in May
Biggest rise in unemployment in 33 years; payrolls fall 49,000
Rex Nutting
MarketWatch, 9:19 a.m. EDT June 6, 2008
http://tinyurl.com/4zp5vh

Economists React: ‘Teen Angst’ or Playing ‘Catch-Up’ in Jobless Rate?
June 6, 2008, 10:39 am
http://blogs.wsj.com/economics/2008/06/06/economists-react-teen-angst-or-playing-catch-up-in-jobless-rate/

Friday, June 06, 2008 | 10:31 AM | Permalink | Comments (27) | TrackBack (0)
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Comments

Here in Vermont teens are having a hard time finding jobs this summer. They typically work in consumer discretionary type jobs and those are weak. Also, a lot of adults are taking the jobs teens would normally take.

I think this is a canary in the coal mine not a one off. So I call bullshit on Rex.

Are you just responding to the criticism that was directed your way by Jeff Miller?

http://oldprof.typepad.com/a_dash_of_insight/2008/06/ism-interpretation-watch-that-decimal-point.html

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BR: VT -- you are discussing 2 different issues: 1) are teenagers having a hard tme finding jobs (I think yes); and 2) Is the BLS accurately reporting the data?

Since this was the biggest jump in teenage unemployment since 1948, that implies it was likely a bit aberrational.

Of course, it has long been my position that this was the weakest job creation post recession cycle since WWII, and that unemployment is vastly understated.

I hadn't seen Jeff Miller's post, but -- my previous reads of his work puts him in the camp that thinks inflation is low, unemployment moderate, and the BLS data fairly reliable. I don't take his critique of my analysis as anything more than confirmation bias on his part (and he can say the same about me).

Posted by: Vermont Trader | Jun 6, 2008 10:58:28 AM