Unemployment: Big print 7.7%, small print revised job creation

The November unemployment numbers were released with the big headline most major media presented stating that the unemployment rate is now down to 7.7%. This is positive news and a signal of improvement in the economy. But headlines have a way of skipping details, important ones.

Before any review of the unemployment figures can be done, the question of the impact of Superstorm Sandy needs to be addressed. According to the Bureau of Labor Statistics (BLS)

“Our analysis suggests that Hurricane Sandy did not substantively impact the national employment and unemployment estimates for November.”

While that is a surprise, going forward there should be a substantial difference in construction hiring due to Sandy. There should also be a smaller but persistent trickle of job losses due to business failures and slowdown in the areas hit hardest by Sandy. Historically, the impact of major natural disasters is a long-term situation affecting a broad swath of employment and business. Normally the largest shock to the system is immediate, and given the November numbers, the positive may be that intial expectations were far in excess of the on-the-ground reality.

Given this fact, the reduction in the unemployment rate deserves serious attention. The .2% drop from October’s 7.9% unemployment rate does not explain the full story of the nature of the economy, or recovery. In fact, a focus on just the headline topping figure obscures data that gives a true perspective on the situation.

The population of the nation increased 191,000 in November, while at the same time the number of people working decreased by 350,000. The ratio of employed people versus population dropped by .01% to 58.7%. At the same time the total number of people not in the workforce (which includes retirement, disability, underage, and unemployed) increased by 542,000 to 88.9 million people.

Just from these numbers the fact that the unemployment rate decreased seems unintelligible. All indications are that the workforce is decreasing and thus unemployment should increase. But, there is a key factor to be included into this figure – people not counted by the Government. The number of those not counted stands at 2.505 million people, call marginally attached workers and defined as “persons who want a job, have searched for work during the prior 12 months, and were available to take a job during the reference week, but had not looked for work in the past 4 weeks.”

The number of marginally attached workers is up 72,000 from October 2012 (chart A-16). This does not convey the full story of the number of people unemployed. On the very same chart, the number of people who currently want a job stands at 6,495,000 people. That is an increase of 353,000 people without work, referred to earlier in this article, but the full figure of unemployed is not factored in. Which may explain why the official unemployment totals have decreased to 11.9 million Americans, yet unofficially it is virtually unchanged at 22.3 million.

Compared to a year ago, the figures are almost at a standstill. Thus the reality is that nothing has changed, though the figures from the Government depict a rosey, if turtle slow, improvement. But the truth gets a bit worse as you review it all.

The figures from September and October’s unemployment reports were wrong. This won’t hit any headlines, but it is important. 12,000 fewer people had jobs in September, and 33,000 fewer had jobs in October. Which means the headline unemployment figures showing substantial improvement in the economy and unermployment rate were incorrect. Which would mean that currently the unemployment figures are off by around .02% or in other words we have just broken 8% unemployment in Novemeber, as the Government counts.

A question that is often asked is why any of this matters. The simple answer is taxes. The more people working the more taxes the Government collects. Fewer people working means less tax money, and the higher the likelihood of tax increases – on every one. Which does not include any inflation effects.

Right now, going by Government figures (chart A-12), some 6.4 million people are out of work for 15 weeks or more. That is 56% of all people unemployed and of that figure 41% have not had a job in more than 27 weeks. This is part of the reason the ration of population to employed workforce is 58.7%.

Thus the burden of taxes falls primarily on 58.7% of the nation. Of that group, some 48% will get refunds from income taxes. So the real burden of taxes falls on roughly 28.2% of the workforce. That burden essentially skips the lowest income groups. More importantly, this means that there is less taxes collected to pay for the spending of Government, and directly increases the national deficit (currently $1.1 trillion) and debt (currently $16.3 trillion).

This is part of the reason why inflation is up 2.2% for the year (as of October 2012). This includes increases in food of 1.7%, energy increases of 8.6%, and shelter increases of 2.3%.

Considering the reality of the situation, which is that the unemployment situation is far worse than any headline of selected Government data indicates, what is the outlook for the nation?

A major concern has been Obamacare (Health Care Reform). As of January 2013, many of its requirements start to kick in. Many companies have laid off workers immediately after the results of the 2012 election were known. As we reported on November 17th

Since November 7th there have been 22 announcements, out of roughly 84+ announcements, with approximately 73,227 workers laid off if you only count announcements with 500 or more being laid off. That’s just 10 days.”

In addition, that article highlighted the trend of companies to move to part-time employment of workers (less than 30 hours per week). Red Lobster and Olive Garden parent company Darden Restaurants, Pillar Hotels & Resorts, CKE Restaurants Inc (Carl Jr’s and Hardee’s), Anna’s Linens have been early adopters of this strategy. The move is being made as per a stipulation in Obamacare that exempts these part-time employees from the projected healthcare cost of $15,000 per employee the companies would otherwise need to pay starting in 2013.

This is reflected in the increase in trend in people working part-time that could only find part-time work (BLS chart A-8). The growth of part-time work has increased 8.6% (comparing Nov 2011 vs Nov 2012 non agricultural workers) to 2.7 million workers. The rate of increase is important, especially when compared on a historical level.

The non-adjusted average for people working part-time that could not find full-time employment, age 16 and over working less than 35 hours a week, from 2002 to 2012 (up to November) is 1.83 million per month. In 2002 (the low) the number was 1.13 million people. At the peak of the recent recession, 2010, the figure was 2.38 million. The number of part-time workers unable to get full-time work has continued to increase with the current to-date amount of 2.54 million per month for 2012. This is an increase vs 2002 (full year) of 126%, vs 2010 of 6.8%, and vs 2011 of 0.9%.


Source: Bureau of Labor Statistics, 10 year chart, Could Only Find Part-Time Work, All Industries – Economic Reason

The indication is that fewer Americans will gain full-time employment, the burden of mandatory healthcare coverage will be managed by a growing number of individuals solely, and the tax burdens of middle-class and top income brackets will increase. This will all happen even as the Government will continue to hit headlines with slowly but continuously lower unemployment rates that inaccurately reflect the reality of the nation.

Based on the analysis above, there is nothing indicating an improvement that will lift the nation out of the economic quagmire it finds itself in for many years to come. Further, while politically important headlines will continue to reach the masses, substantial improvements in job opportunities will elude a growing number of Americans. Lastly, the ramifications of a dwindling tax base, with increasing monetary burdens, in the face of unabated Government spending projects a fiscal outlook that is unsustainable and will become worse over time, especially if interest rates (which were not factored in to any of the above figures) increase.

Given all of this, it’s quite understandable why so much is relagated to small print.

About the Author

Michael Vass
Born in 1968, a political commentator for over a decade. Has traveled the U.S. and lived in Moscow and Tsblisi, A former stockbroker and 2014 Congressional candidate. Passionate about politics with emphasis on 1st and 2nd Amendments.

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