More About Labor Statistics

Friday I blogged about the recent unemployment information released by the Bureau of Labor Statistics. My concern with the information released is how it can be manipulated to cause certain reaction in us individually and collectively.

The unemployment data released last week does not make sense. While news were released about the decrease in unemployment rate, information was also being released that employers in the United States has slowed down their hiring pace in July which produces a pair of mixed signals. This contradicting information only casts doubt over our "economic recovery".

Lets keep in mind that the drop in unemployment rate was in part due to the decline in the workforce size (people with jobs or looking for work). The US workforce size is reduced by those who retire, go to school and give up looking for work. Another important piece of information is that in the month of July Americans worked shorter weeks on average.

You may be wondering what does this information has to do with wealth building and the answer is everything. The financial data, including labor statistics, released by the government is intended for one reason; to cause a reaction on us. It is intended to cause you to divert some of your hard earned funds into the stock market, real estate, etc. It is important to study the information being presented to us, ask questions, and not to react to it.

Great News: Unemployment Rate is down to 7.4%

According to a report issued by the Bureau of Labor Statistics (BLS) –The Employment Situation July 2013, “Total nonfarm payroll employment increased by 162,000 in July, and the unemployment rate edged down to 7.4 percent, the U.S. Bureau of Labor Statistics reported today.” This is the lowest level for the unemployment rate since November 2008!

The news even though seems to be positive, I must question the information. The unemployment rate varies in accordance with the Household Survey, not the reported headline jobs number, and not in accordance with the weekly claims data. For example:

1. After the employment gains for the months of May and June, the information was revised. The change in total nonfarm payroll employment for May was revised from +195,000 to +176,000, and the change for June was revised from +195,000 to +188,000. With these revisions, employment gains in May and June combined were 26,000 less than previously reported. Therefore, it is likely that the employment information for the month of July will be adjusted most likely downward. See the employment report by BLS.
2. Even though the news focuses on the amount of jobs added, it fails to tells us that economists were looking for 185,000 new payrolls in this report. However, despite missing the mark, the unemployment rate still managed to decrease to 7.4% in July from 7.6% in June. How can that be? One reason is “the labor force participation rate”, which fell to 63.4% last month from 63.5% the month before. This is the percentage of the working age population in the labor force. Note: The US participation rate has decreased from 66.1% in August 2003 to 63.4% in 2013.
3. 8,245,000 workers who are working part-time but want full-time work. A year ago there were 8,245,000. There is improvement in the creation of full-time employment.
4. There has been a shift from full-time employment to part-time employment and underemployment, which distorts the reality of our employment situation in the United States. This does not require government surveys, just look around you and ask your friends and family and find out for yourself how many are underemployed and underpaid. Read the New York Times “Lost in Recession, Toll on Underemployed and Underpaid”.

We need to carefully read and question the data presented to us by the government before we act on that information.