Friday, February 3, 2012

Things are looking up!...Aren't they?

According to the Bureau of Labor Statistics, the unemployment rate has dropped to 8.3%, the lowest it's been in three years. And right on cue, the media happily laps up this pronouncement with fan-boy titled stories like this one at The New York Times. The story opens with this glorious quotable quote:
The front wheels have lifted off the runway. Now, Americans are waiting to see if the economy can truly get aloft.
It then trumpets the revised number for previous months, noting that now December 2011 and November 2011 look even better, indicating that the jobs market is "gathering steam."

From there, however, the author looks at some metrics that seem to contradict this rosy picture, like a still-falling market in homes, a lack of growth in incomes, and less-than-impressive numbers for consumer spending. But it's hard to shake the idea that things are better because the unemployment rate is lower.

But is it really lower? This article by Tyler Durden at ZeroHedge from earlier this month takes a look at the games being played by the BLS in computing unemployment numbers. The problem lies with the BLS's use of a participation rate, based on a questionably theorized idea of the number of people seeking employment. By lowering this rate--based on people "dropping out" of the job market--the BLS is able to report a lower unemployment rate, even if the number of unemployed people has not actually decreased.

As Durden correctly note, the idea that retirement can account for a lower participation rate is nonsensical, since it is easily offset by population--and therefore labor market--growth. Durden then constructs some graphs, using more realistic numbers for participation (gotten by simply looking at historical averages) and, surprise, surprise, all is not that rosy after all:

(courtesy of ZeroHedge.com)

Note that the reported unemployment rate has been steadily trending downward since Obama took office (someone at the BLS really loves him!), but the corrected rate is really not moving all that much, perhaps trending a tad upwards if anything, for the same period.

Of course, the graph is not current to 2012. Perhaps it will turn out that things really have gotten better, with regard to unemployment numbers. But it's unlikely, given that the BLS continues to use the same formulas. The small drop in the reported unemployment rate actually suggests there has been a small increase, which I guess is better than a large increase. Huzzah.

Cheers, all.

4 comments:

  1. Durden has another article out today, with even more groovy graphs.

    http://www.zerohedge.com/news/record-12-million-people-fall-out-labor-force-one-month-labor-force-participation-rate-tumbles-

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  2. One thing's for certain: No matter how much data are presented to the government, there is no way it will ever accept an upward revision of the UE rate to 11%. Lol. Stretch it on the rack, boil it in oil, cut off franking privileges....

    The government has face, and preserving that is much more important than getting economic data right. People have been complaining about BLS bias since I was in college, 30 years ago. Doesn't seem to have made a bit a difference.

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  3. Thanks for the comment, Anon. And you're right: complaining about it isn't working.

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