STAGNATION, BY ANY OTHER NAME IS STILL STAGNATION
A Naked Emperor’s Clothes Analysis
Jay B Gaskill, Attorney at Law
Also on the Policy Think site as an HTM file http://jaygaskill.com/STAGNATION.htm
I prefer good news over bad, but the truth over delusion. Has unemployment really taken a sudden pre-election decrease?
Long term employment improvement prospects are linked to the growth of the general economy (as expressed in the GDP), and in the growth in the labor force, the new workers who enter the job market every month as our population increases.
Understanding this context changes everything about the government press release trumpeting an unemployment decline from 8.1% to a mere 7.8%. The real number was 14.7% and remains stuck at 14.7%.
FIRST: GDP is not growing fast enough to support the current labor market…
…let alone fast enough to make a dent in the 12.6 million army of the out-of work men and women. Spin can only go so far, but the true numbers have a way of leaking out.
“NEW YORK (CNNMoney) — The U.S. economy grew even slower than initially reported in the second quarter, as both consumers and businesses spent less than originally thought, and the drought in the Midwest limited agricultural production.
“Gross domestic product, the broadest measure of the nation’s economic health, grew at an annual rate of 1.3% from April to June, the Commerce Department said Thursday, slower than the 1.7% rate the government last reported in August.
“The downward revision came as a surprise to economists who were largely expecting the figure to remain unchanged. It also marked slower growth than in the first three months of the year, when GDP accelerated at a 2% annual rate.
‘”The 1.3% increase in GDP was the weakest since the third quarter of last year and one of the weakest seen since the recovery began three years ago.”’ http://money.cnn.com/2012/09/27/news/economy/gdp-report/
SECOND: Real unemployment is not down .3% for September.
In the latest Bureau of Labor Statistics press release (http://www.bls.gov/news.release/pdf/empsit.pdf), we were just told that the unemployment rate has fallen .3% from – 8.1% to 7.8% for the month of September.
“Total nonfarm payroll employment increased by 114,000 in September. In 2012, employment growth has averaged 146,000 per month, compared with an average monthly gain of 153,000 in 2011. In September, employment rose in health care and in transportation and warehousing.”
But most of the employment growth is automatically eaten up by the growth of the labor force.
The Center for Economic and Policy Research (CEPR) (whose advisory board includes Nobel Laureate economists Robert Solow and Joseph Stiglitz; Janet Gornick, Professor at the CUNY Graduate School and Director of the Luxembourg Income Study; and Richard Freeman, Professor of Economics at Harvard University) reminds us that “the underlying rate of labor force growth is now just 0.7 percent annually. This comes to roughly 1,050,000 a year or just under 90,000 a month.”
Buy this measure, our advertised recovery has been little more than treading water, while the GNP has gradually weakened.
The employed/unemployed numbers for the prior month (August) were Labor Force: 155,255,000 /Employed: 142,558,000 / Unemployed: 12,696,000 (8.2% / 8.1%)
Source: Research and Analysis Unit, Indiana Dept. of Workforce Development – using federal Data & procedures. http://www.nidataplus.com/lfeus1.htm.
Using the Bureau of Labor Statistics ‘ own numbers, the September 2012 press release claimed a net gain (over the baseline labor force growth) of only 24,000 jobs.
This is a straightforward calculation. Let’s refer to the raw number of August unemployed (12,696,000). Add the new labor force growth of 90,000 and subtract the claimed new jobs in September of 114,000. By this measure unemployment would have diminished in September from 12,696,000 to 12, 974,000, an unemployment decline of only 24,000 jobs. But that’s a change of .189 %, not the .3% claimed. Has someone has been tinkering with the underlying rate of labor growth?
Look for a downward revision of this number in the next few weeks.
THIRD: WATCH THE U6
It gets worse. On the face of it, when we take into account the underemployment figures that have disclosed that we have been living with a double digit unemployment problem for the last three years, the achievement is even more underwhelming. The “other” measure of employment distress is called U6
“The 7.8% figure reflects the percentage of the total workforce who are unemployed and are actively looking for work. This figure does not include unemployed members of the workforce who are not actively looking for work; nor does it factor in workers with part-time jobs who are seeking full-time employment. When these workers are included, the (U-6) un/underemployment rate for September remained at 14.7% as it had been in August.”
In the same Bureau of Labor Statistics press release, we learned that-
“The number of persons employed part time for economic reasons (sometimes referred to as involuntary part-time workers) rose from 8.0 million in August to 8.6 million in September. These individuals were working part time because their hours had been cut back or because they were unable to find a full-time job.” That is a net negative change of 600,000, a negative percentage change of 7.5%.
FOUR: Don’t be spun by the spin.
When you fold these factors back into the latest Bureau of Labor Statistics press release, you end up with a snapshot of what stagnation looks like, not a recovery. When our new president confidently predicted that his first stimulus program, consisting mostly of money for time-limited government projects, would shock the economy into life, his maladroit medical image revealed a critical error in his economic thinking. You don’t shock a cancer patient into health. Every measure Mr. Obama or fed head Bernanke have used or proposed since then have been directed at stimulating consumption. But these days consumer consumption eventually finds its way to Chinese factories, not US ones.
If we were a corporation by now we would have replaced the management team. Where is Steve Jobs when we need him?
Copyright © 2012 by Jay B Gaskill, attorney at Law
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