Friday, April 3, 2009

Real March Unemployment Reaches 12.5%

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I have not an in depth employment report since looking at October [Nov 7: October's Unemployment Rate Rises to "6.5%"] so for long time readers the main numbers are 8.5% (U-3) and 15.6% (U-6) and 20%ish (Shadowstats). You can skip the rest of the entry which explains the normal spiel to newer readers about what exactly is going on behind the subterfuge.

As always, warning - this is a long post.

First, let's begin with the official data
  • The U.S. unemployment rate jumped in March to the highest level since 1983 as the economy lost 663,000 jobs. The jobless rate increased to 8.5 percent from 8.1 percent in February. Employers have cut a total of about 5.1 million posts since the recession began, the biggest slump in the postwar era.
Some important data that does not get the mainstream attention
  • Total hours worked in the economy fell by 1%. The average workweek fell by 6 minutes to a record-low 33.2 hours.
  • Workers’ average hourly wages rose 3 cents, or 0.2 percent, to $18.50 from the prior month. Hourly earnings were 3.4 percent higher than March 2008.

Second, let's begin by saying the job losses are huge - another month of > "650,000". I always put that data in quotes because (a) as you will see below its adjusted upward by government statistician guesses and (b) it's been revised downward constantly 1-2 months after the fact. We've really been losing upwards of 800,000 jobs a month for much of the past 4-5 months. Now, the stock market does not care because it is backwards looking. We have to look forward. Will this number improve? It has to eventually - the pace we are going is unprecedented. Even adjusted for population growth (i.e. 650,000 lost jobs now is not "as bad" as 650,000 lost in the 1960s due to population increases) this series over the past half year is as bad as the worst of the early 1970s (as a % of population). That time frame has the worst 1 month job losses as a % of population so we are matching that by OFFICIAL numbers and beating it by REAL numbers. So the bulls rightly say this number will improve - it has to. Look for job losses more on the order of 200k-400K/mo as we move further into summer. We will "celebrate" those numbers as "2nd derivative improvements" and "the tide has turned". Going off my double dip recession forecast combined with "jobless recovery", with the tsunami of government dollars we might even have 0 job loss months by the end of 2009. But by that point we'll need to find 8M+ jobs to offset what we have lost.

But it is now official, we have worst official data than the depths of the job losses in the late 70s and early 80s. (10%ish) Only it won't be reported that way; but below is the reality check.

Let's go on to our normal nitty gritty - let's begin with the data from Shadowstats.com showing you the trend - let me explain the data points. This chart shows our government figures (today) versus how they would show if we used methodologies we used to use when we actually told the truth to our people. You might ask how I got to 12.5% when the official number is 8.5%?

(click to enlarge)


Let me explain using the 3 lines above - as you see the red line is what you are told is official unemployment and the number mainstream media will talk about - this is called U-3 in the government's report. The gray line is the broader measure of unemployment (called U-6 in the government's reports) which includes people with PART time jobs but WANT full time jobs and others marginally attached if you will (tried to find a job in the past 4 weeks)

The U-6 figure includes everyone in the official rate plus “marginally attached workers” — those who are neither working nor looking for work, but say they want a job and have looked for work recently; and people who are employed part-time for economic reasons, meaning they want full-time work but took a part-time schedule instead because that’s all they could find.

The blue line as explained on the website is

The SGS Alternate Unemployment Rate reflects current unemployment reporting methodology adjusted for SGS-estimated "discouraged workers" defined away during the Clinton Administration added to the existing BLS estimates of level U-6 unemployment.


For those not familiar with the gamesmanship here, the government (Clinton era forward) began making "adjustments" to the data to make it not quite so stinging. It was somewhat humorous when unemployment was officially sub 5% (but not really), but now in the depths of a brutal recession it's more along the lines of an egregious obfuscation. So to be conservative and to get to my 12.5% I am going to add together the official 8.5% to the variance between the SGS Alternative and U-6. (4%) = 12.5%. That 4% is what the government has wiped away over the years - discouraged workers aka people who have given up. Because in America after a specific period of time of being unemployed ... well you are no longer unemployed (believe this is 4 weeks of top of my head). See how it works? This is why we sometimes see data where the # of employed people falls but the unemployed rate doesn't rise in the same ratio... people who have given up for a certain period of time have disappeared into the ether and no longer count. So in this economy when finding a new job is taking much much longer than many post war recessions, that gap should only widen from here - meaning the gap between how we used to measure unemployment and what you will hear, will only widen.

Where can you see this? We have a separate survey released today that does not get much attention
  • The separate survey of households showed employment dropped by 861,000, with unemployment rising by 694,000 to 13.2 million. The employment-population ratio dropped to 59.9%, the lowest rate since 1985.
What does that mean? It means a good portion of 170,000 people gave up - employment dropped 861,000 but unemployment only increased 694,000. Did all the people in that variance give up? No - some of might of went back to school, or some women had babies and dropped out of workforce permanently - we don't know. But these are the people the government no longer counts as unemployed.

A more liberal application would say 20% is the true unemployment rate - this adds U-6 (underemployed people) + the discouraged workers but I am going the conservative route - although I believe the truth lies somewhere in between 12.5% and 20% .Again this is roughly 2% above the worst times of the 1970s and early 80s (if you are under 30 ask your parents). And we have much more to go in the months ahead. So as you hear "unemployment at 25 year high" - that's not reality; if we had kept consistent measuring similar to how we measured pre early 90s - this is the worst post World War II unemployment period.

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Let's take a moment to talk about Underemployment - I wrote about this extensively here [Apr 2, 2008: The Underemployment Rate is Rising] Jobs are less secure, temporary employment has been growing over time (easy to cut at a moment's notice by employers), and most importantly people are working in jobs "beneath" their education level increasingly as "good jobs" are shipped off elsewhere. Because higher paying jobs crimp profits and that is not a good thing in our brand of corporate socialism.... err, capitalism. In that piece I wrote

I've been struggling to think of a term for all these people who are struggling with part time work, working 2 jobs, or in contractor jobs where they get hired/fired on a daily whim ( I call them "nomad workers") This is a systematic and secular situation - nothing to do with 1 month's report or another. It is part and parcel with the erosion of living standards - and why so many in the middle and lower economic strata turn to home equity, credit cards, etc to just get by.


It is worth reading that whole entry if you are new; but the key thesis is many are struggling with multiple part time jobs or working in jobs they are over qualified for but need money to make ends meet as we move away from a "production" society to a "service economy" (you do my taxes, I'll cut your hair, she'll walk my dogs, he'll serve me a burger) as our multinationals move jobs away to cheaper labor pools. I want to stress this is a a STRUCTURAL change to the economy, not simply due to the recession. It is only now being exposed as more and more are being faced with it, higher up the socio-economic food chain.

Here is the data on these people
  • The number of workers who want full-time work but can only find part-time jobs rose by 423,000 to 9 million in March. Since the recession began, involuntary part-time workers have increased by 4.4 million.
These people make up the difference between U-6 and U-3 above.

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Next, we have to show new readers the ludicrous birth/death model - you can read about it in detail here [Jan 27, 2008: Monthly Jobs Report & Birth/Death Model] You should read this whole post as well if new to "U.S. Government Statistics" but in summary this represents new business formation (or closing) in America - a guesswork. It is "fine" when the economy is generally trending slowly in one direction but terrible when we have changes in directions. And it has been manipulated like mad - over the past 1.5 years the government has been filling this data point with "new businesses/jobs" created in construction, financial services, manufacturing, etc. How is that possible? It's not - but that's what you can do when part of your official report is guesswork - you can put whatever number you want in it. We have more on this later in the post but by creating new jobs in new businesses - the number is understated EVEN further.

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Last, from my end is a structural problem we have (this has little to do with the actual figures) - this is a personal beef and shows the dysfunction of the economy. The major job creators in America, instead of say "making stuff other people want" or "creating intellectual property" are instead healthcare and government. The VERY two things that are slowly bankrupting the country. From my April piece above about underemployment


We have 2 huge beaurocracies - federal government and healthcare. To keep the government from going even more insolvent we should in theory be cutting jobs from these 2 white elephants. Healthcare costs spiral out of control and we hire more people - I believe healthcare is now 16% of GDP. But how do you cut costs without cutting jobs? Thats the other dark secret - most of our recent gains in jobs are either government or healthcare related.

So how do you fix the long term problems in either? Chicken or egg? They are sapping our national wealth away by their huge excesses/costs BUT they also provide the main job growth as well. As with everything my expectation is the "kick the can down the road" theory will continue - keep growing these massive bureaucracies (create more jobs and costs now) and let another generation pay for it.


With that said a long term thesis of ours has been state budgets imploding in 2009 and 2010. I said we'll finally begin "right sizing" (kicking and screaming) jobs at the state level once we got "here". And finally (drum roll) for the first time I can ever remember since following this, government jobs decreased
  • Government payrolls decreased by 5,000 after a gain of 3,000 the prior month.
It is now so bad, that despite the federal government increasing jobs at a furious rate as they do every year, state governments FINALLY cut more to offset the federal government. But I'd expect this to reverse soon enough (which will create "good job reports" in the back half of 2009) as we create false prosperity. Taking money out of your pocket to subsidize job growth - since the broken, over levered, service economy can't do it anymore.

But not to worry folks, we still have the ever spiraling cost of healthcare - the most expensive in the world by multiple factors (even though 40% of our population does not have insurance)

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Below this I will copy Mish Shedlock's comments - he still has the energy to look at the fictitious details and break them out; I've long gave up on the exercise since "garbage in, garbage out" is my assessment. Just remember, the stock market is not the economy - Main Street is not Wall Street. Oops, everyone says Wall Street is Main Street as long as it pertains to why you need to bail out Wall Street. Ok, that relationship does exist - but only when it comes to bailouts... otherwise Main Street is not Wall Street and the pain on Main Street can be wiped away as we look forward to great times ahead. Soon the time comes when the country is filled again with federal government jobs (that money came from where?) and federally subsidized state government jobs . But just remember - this is now the worst employment situation we've had since the Great Depression ... although most talking heads simply are not rigorous to figure it out.

Mish's Data below (what do you know, in a month we lost almost 700,000 jobs the government says small businesses added 114,000! laughable - so laughable)

Highlights

  • 663,00 jobs were lost in total
  • 126,000 construction jobs were lost
  • 161,000 manufacturing jobs were lost
  • 358,000 service providing jobs were lost
  • 48,000 retail trade jobs were lost
  • 133,000 professional and business services jobs were lost
  • 8,000 education and health services jobs were added
  • 40,000 leisure and hospitality jobs were lost
  • 5,000 government jobs were lost

A total of 305,000 goods producing jobs were lost (higher paying jobs), and the service sector was clobbered once again as well. Government lost 5,000 jobs, a welcome event, but I expect this to change in the months ahead along with various stimulus programs.

It was nearly a clean sweep this month. 8,000 education and health services jobs were the only gains for march.

.... the Birth/Death numbers are back in outer space.... At this point in the cycle birth death numbers should be massively contracting. Month after month, with the exception of January, the BLS is assuming more jobs were created by new businesses than lost by businesses closing shop. The BLS model is horribly wrong.

For those unfamiliar with the birth/death model, monthly jobs adjustments are made by the BLS based on economic assumptions about the birth and death of businesses (not individuals). Those assumptions are made according to estimates of where the BLS thinks we are in the economic cycle.

The BLS has admitted however, that their model will be wrong at economic turning points. And there is no doubt we are long past an economic turning point.

Table A-12 is where one can find a better approximation of what the unemployment rate really is. Let's take a look

(click to enlarge)


The official unemployment rate is 8.5% and rising sharply. However, if you start counting all the people that want a job but gave up, all the people with part-time jobs that want a full-time job, all the people who dropped off the unemployment rolls because their unemployment benefits ran out, etc., you get a closer picture of what the unemployment rate is. That number is in the last row labeled U-6. It reflects how unemployment feels to the average Joe on the street. U-6 is 15.6%.

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