Friday, January 07, 2011

America's unemployment rate dropped from 9.8% to 9.4%.

The Bureau of Labor Statistics released its employment report for December. America's seasonally adjusted unemployment rate dropped from 9.8% to 9.4% in December. Is this proof that the household survey is inherently unreliable or that this is a reversal of trend?

Neither!

The unemployment rate has been following a slow downward trend since the fall of 2009. Now looking at the seasonally unadjusted data, we also see it has been falling for five straight months relative to the same month last year (SPLY in postalese.) This trend has been masked by the seasonal adjustment process (see the previous post.)

No doubt analysts will be disappointed by the small increase in jobs (103,000) reported by the establishment survey. Do not give it too much weight. These data will be revised, perhaps drastically in February, leading also to substantial revisions to the GDP series. This will cause the whole history of the recovery to be rewritten.

The good news is that the establishment data may become a more useful real time cyclical indicator. The BLS announced, "Effective with the release of January 2011 data on February 4, 2011, the establishment survey will begin estimating net business birth/death adjustment factors on a quarterly basis, replacing the current practice of estimating the factors annually. This will allow the establishment survey to incorporate information from the Quarterly Census of Employment and Wages into the birth/death adjustment factors as soon as it becomes available and thereby improve the factors. Additional information on this change is available at www.bls.gov/ces/ces_quarterly_birthdeath.pdf."


And that is very good news. Tracking the next cycle with the jobs data will be more accurate.

On a sour note, the BLS will update the household estimates with new population data in February. Historically the gnomes resident in the Postal Square Building have not been time series friendly in their population updates.

2 comments:

Ryan Pendleton said...

I can't recall the index, but Mark Perry has referenced it on his blog, "CARPE DIEM"...It has something to do with pickup purchases and how this was a leading indicator of entrepreneurial activity. This index has been increasing which may indicate that entrepreneurial activity is on the rise and the economy is naturally adjusting to the new economic landscape. Count me as one who has started a new business and bought a pickup truck too!

Michael Riley said...

If we believe Richard Roll and John Talbot, over 80% of the difference in prosperity between countries is explained by government action. We have a massive change in centralization of government control plus ceding power to trail lawyers and unions. Examples include health care, TSA, EPA –(Carbon limits), TARP, Government take over of student loans, food safety, financial regulation, the growth of a massive underclass of illegal aliens who are off the books, a massive waste of money in the stimulus and a Federal Reserve that is spewing money like a major volcanic eruption.
It is a wonder that the economy is doing as well as it is. Good ideas like high speed rail are botched. Will the Chinese build the LA to Disneyland route? Do we really need high speed rail for a few dozen people to ride from Tampa to Orlando or Milwaukee to Madison? The Tampa rail station in Ybor city is in a slum and mostly deserted. I-4 is recently widened and a great road.
We added 4 trillion to the debt and have nothing to show for it.
As to unemployment, how many people do you know who want a good job and can not find one? I know at least 6.
Our population grows about 2 million per year and at a 65% participation rate that means we need 1.3 million new jobs to stay even. If you look at table B of the release today, the country grew 1,246,000 jobs in the last year and many were in government or government sponsored green jobs. It is hardly anything to cheer about.
Let’s hope for better in 2011.
Mike Riley