Thursday, January 06, 2011

Maybe America's Employment Malaise Is Not as Bad As It Seems

Tomorrow we get to see the December employment data.  It may well show that things are not as gloomy as we have been seeing.    Certainly America's 9.8% unemployment in November was depressing and in that vein, I wrote "A quick survey of the numbers demonstrates that the national economy is mired in a malaise worse than in any previous postwar U.S. recession."

Wall Street has grasped at any number of straws in the wind to convince itself that things are looking up.  Unemployment claims are down, manufacturing purchasing mangers are saying things are up.  Can the stock market's upbeat tea reading be right?  Yes, it can.  

Whatever tomorrow's data show, the employment scene may not be as bad as it now looks.  I am mostly looking at the household survey data.  The last two recessions demonstrate that the establishment data is an unreliable real time guide to cyclical trends.   The survey is badly biased during downturns and perhaps recoveries.  It misestimates the cyclical impact of births and deaths of firms on employment.  

Why might the data paint an overly gloomy picture?  I have come to believe that the seasonal adjustment overcompensates during cyclical swings.  Consider these data:  while the seasonally adjusted unemployment rate is 9.8%, the unadjusted rate for November is 9.3%.  Not surprising.  Retailers hire going into the Christmas season. On a seasonal adjusted basis, retail employment was down from October (establishment data); yet that same survey shows retail employment was up over November, 2009.  Curious.  Moreover, the national seasonally unadjusted unemployment rate (household survey) is down from a year ago for four straight months.

The seasonal adjustment process averages data over thirty years.  It is a blunt instrument for dealing with the massive impact household deleveraging is having on retail sales, the structure of the retail sector, and thus seasonal retail employment.  Indirectly, this affects the estimate of the seasonally adjusted national unemployment rate as well.

Before you break out the champagne,  note my favorite long term cyclical indicator, the employment rate peaked in April.

While I am backtracking on what I said about the national employment picture a little, I stand by my two conclusions on our long term prognosis and Wichita's prospects:

"The fundamental dislocations that led to the recession of 2007 to 2009 have not been addressed." and

"We have three significant strengths on which [to buck the national] trend...: exports, energy and entrepreneurship."

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