Is that a tunnel at the end of the light?

The Bureau of labor statistics (BLS) released a June jobless figure at 9.5, a paltry 0.1% over May. But while some are cheering the number, that 0.1 still amounts to another 467,000 more unemployed persons, and with an unadjusted rate of 9.7% for June, we had best be looking at other trends to determine where we really are, and if there is a reason to hope the downtrend has slowed.

To begin you have to understand that BLS appears to report employment statistics based on the number of actively employed against the number of people who by all accounts “want” to be working. So if we all stopped working and stopped looking for work, in theory the unemployment percent would drop to the historic lows we saw during the Bush Presidency, but GDP would also be in the basement, and we’d have a standard of living in line with Somalia of Myanmar. If that was desirable who would care but by all historic accounts it’s not.

So how they guess who wants to work, given all the other figures, creates an intangible penumbra of what-ifs that in a good economy don’t make all that much difference. But when people can’t find work and give up, and unfortunately there is evidence that millions have stopped looking—the numbers can be deceiving, and I think 9.5% is not only deceiving, it’s going to create false hope. While hope can move markets, it still needs cash, and we have already seen that Hope and government stimulus change cannot replace real hope and free market incomes. So where might we really be unemployment wise and why care?

Based on the BLS data we do have, the non-institutional population (solely for the sake of estimating how many of them are in the workforce) has risen about 2 million since last June while the number of people available in the workforce has declined by 656,000. Of the 235.6 million people who could be counted in the BLS figures BLS estimates that only 154.9 million are considered as in the civilian work force and only 140.2 million of them are actually employed. (these are the figures they use to define unemployment percentages) The 140.2 million figure is 6.5 million fewer than Jun 2008.

So if you crunch the changes in all the numbers there appear to be about 2 million fewer people looking for work than 12 months ago, people who have either given up or placed themselves in some other situation. This provides us with a top end to our range of potentially unaccounted for unemployed varying from the 656,000 figure (no longer listed as part of the total workforce) up to the 2 million more people available but not included. That would place real unemployment somewhere between 9.8 and 10.8%.

Now I’m not claiming we should use these numbers as a hard measure of actual unemployment, or even judge policy against them, but with seasonally unadjusted unemployment is above 9.7%, 9.8 is not that far off the mark, and the Whitehouse has consistently prefaced jobs numbers with significantly inaccurate press releases stating positive indicators that turned out to be wildly incorrect.

Earlier projections from the White House offered signs of a significant decrease in job losses in June—I think the figure was only around 360,000--which was widely reported, but is in fact 107K shy of reality. (23% wide if you care) While a turnaround would be great, and 9.5% offers that potential, the fact that another half million people are unemployed, and millions are no longer statistically looking (and therefore unaccounted for in the jobs numbers) should not be ignored; primarily because the affect that they could have on loss of productivity will impact GDP in ways that 9.5% unemployment can’t account for, and if millions continue to abandon their search unaccounted for, unemployment could actually appear to be going back down while other economic indicators worsen, simply because of how BLS factor statistics to arrive at their results.

Western states are running over 10% unemployment, and a handful are in the 12-14% range. The current adjusted rates for men nationally is between 10% and 10.6%. Women maintain 7.6 to 8.3% unemployment, where the 16-19 age group accounts for the high end of the range.

Women seem to dominate professions less affected and slower to feel a long term decline in the economy, so we may be seeing circumstances where the bread winner is now Mom, and Soccer Dads are running the household while they consider their options. There’s nothing wrong with that if you can get by, (and I’d gladly volunteer for the position if we could afford it at my house) but nothing out of Washington has demonstrated any significant affect—where the rhetoric to reality ration is way off the reservation—and as more government bears down on available wealth to fund it, less free money means fewer jobs fewer raises and higher prices. That means families cutting more corners which cut sales which cuts inventories which leads to my next point.

While a 0.1% increases (real or not) shows some signs of improvement, wage growth and weekly hours worked are down for the first time in months. So we should expect the real earnings figures mid-month to be down as well. What that means is that the initial uptick in work created by people picking up slack for initial job reductions as far back as last summer and fall is disappearing. So many companies may have reached a point where they don’t think they can afford to cut more jobs without doing harm to core production or services so they are beginning to shorten shifts which reduces hours, which cuts any remaining or potential overtime, all of which then reduces average weekly earnings and real income. If these figures continue to drop, even with a reported flat rate of unemployment, we’re still in a bad place, where companies are cutting back without laying off. It means less income to cycle through the economy which perpetuates economic stagnation, declining or stalled GDP, and an increasing misery index.

9.5% may seem promising, but I suspect it is misleading, and we need to watch this and other factors very carefully so we are not fooled into thinking we have seen the light at the end of the tunnel, when what we have is another tunnel at the end of the light.

Comments

[Dave Jarvis]

Steve,

Great work. It's three tunnels though. SDRs, and commercial real estate deserve their place under the sun as well.
As far as tunnels go, we are on a trainride through Switzerland.