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FRIDAY, OCTOBER 5, 2012
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Quality of September Jobs Gain Much Worse Than the Quantity
By RANDALL W. FORSYTH
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Involuntary part-timers send the headline jobless rate lower but leaves "under-employment" unchanged.
There's no conspiracy. But the surprise plunge in the unemployment rate to 7.8% in September from 8.1% in August vastly overstates the meager improvement in the labor market.
In a tweet heard around the business and financial world, Jack Welch accused the Obama administration of cooking the jobs report to its political advantage. "Unbelievable jobs numbers...these Chicago guys will do anything...can't debate so change numbers," was the charge from the former CEO of General Electric, whose quarterly-earnings reports seemed to come in a penny ahead of analysts' estimates more often than not during his tenure.
Be that as it may, the surprise drop in the jobless rates last month was the result of a huge, 873,000 increase in the number of job-holders found in the survey of households. Unlike the previous month, when the unemployment rate fell solely because of a shrinkage in the labor force, there was a 414,000 increase in the labor force in September. Nevertheless, the percentage of the adult population in the labor force remained at a low 63.6%.
The September surge in household employment contrasts with the tepid, 114,000 increase in nonfarm payrolls, which is derived from a more comprehensive survey of business establishment and was spot-on with economists' forecasts. Upward revisions in the two preceding months also added a total of 86,000 workers to payrolls, clearly a positive.
But digging down into the BLS release shows that, of the 873,000 jump in household employment, two-thirds of it was the result of a huge increase in "involuntary" part-time workers. Nearly 600,000 of those who found jobs last month got only part-time work when they really wanted -- or needed -- full-time jobs. And not only does part-time work by definition provide fewer hours, they generally also come with lower pay and few benefits. Moreover, half of the part-timers that landed in that category landed there because their hours were cut back, notes Michael T. Lewis, head of the Free Market Inc. economic consultancy.
Thus, while the quantity of jobs that turned up in the BLS household survey was impressive, the quality of those jobs were decidedly substandard.
That's also reflected in the so-called "under-employment" rate, formally called U-6 by the BLS, which adds back the involuntary part-timers and those "marginally attached to the labor force" (folks who aren't actively looking for work but would take a job.) This measure of the job market remained stuck at 14.7% last month despite the outsized drop in the headline unemployment rate.
In any case, the household survey provides a much less reliable picture of the labor market from month-to-month, which is why economists concentrate on the payroll data from the establishment survey. And even if one takes the jump in part-time employment at face value, it suggests employers remain unwilling to take on full-time workers, which arguably could be an effect of the uncertainty engendered by the looming "fiscal cliff."
The political import of this jobs report -- the next-to-last one before the Nov. 6 elections -- may vastly exceed any economic or financial impact. The Federal Reserve already has declared it will continue its quantitative easing -- QE infinity, as some have dubbed -- by purchasing $40 billion of mortgage-backed securities per month until it sees substantial improvement in the labor market, which it doesn't define. And the Fed says it won't reverse its easing even when the economy begins to expand.
So, even a string of robust jobs reports is unlikely to cause Bernanke & Co. from backing away from QE or their intention to hold short-term rates near zero through mid-2015.
Numbers such as these are proving to be more of a political Rorschach Test, with partisans seeing what they want in them.
Perceptions aside, the fact remains that one in seven persons in the labor force can't find full-time work more than three years into a supposed economic recovery.
In a tweet heard around the business and financial world, Jack Welch accused the Obama administration of cooking the jobs report to its political advantage. "Unbelievable jobs numbers...these Chicago guys will do anything...can't debate so change numbers," was the charge from the former CEO of General Electric, whose quarterly-earnings reports seemed to come in a penny ahead of analysts' estimates more often than not during his tenure.
Be that as it may, the surprise drop in the jobless rates last month was the result of a huge, 873,000 increase in the number of job-holders found in the survey of households. Unlike the previous month, when the unemployment rate fell solely because of a shrinkage in the labor force, there was a 414,000 increase in the labor force in September. Nevertheless, the percentage of the adult population in the labor force remained at a low 63.6%.
The September surge in household employment contrasts with the tepid, 114,000 increase in nonfarm payrolls, which is derived from a more comprehensive survey of business establishment and was spot-on with economists' forecasts. Upward revisions in the two preceding months also added a total of 86,000 workers to payrolls, clearly a positive.
But digging down into the BLS release shows that, of the 873,000 jump in household employment, two-thirds of it was the result of a huge increase in "involuntary" part-time workers. Nearly 600,000 of those who found jobs last month got only part-time work when they really wanted -- or needed -- full-time jobs. And not only does part-time work by definition provide fewer hours, they generally also come with lower pay and few benefits. Moreover, half of the part-timers that landed in that category landed there because their hours were cut back, notes Michael T. Lewis, head of the Free Market Inc. economic consultancy.
Thus, while the quantity of jobs that turned up in the BLS household survey was impressive, the quality of those jobs were decidedly substandard.
That's also reflected in the so-called "under-employment" rate, formally called U-6 by the BLS, which adds back the involuntary part-timers and those "marginally attached to the labor force" (folks who aren't actively looking for work but would take a job.) This measure of the job market remained stuck at 14.7% last month despite the outsized drop in the headline unemployment rate.
In any case, the household survey provides a much less reliable picture of the labor market from month-to-month, which is why economists concentrate on the payroll data from the establishment survey. And even if one takes the jump in part-time employment at face value, it suggests employers remain unwilling to take on full-time workers, which arguably could be an effect of the uncertainty engendered by the looming "fiscal cliff."
The political import of this jobs report -- the next-to-last one before the Nov. 6 elections -- may vastly exceed any economic or financial impact. The Federal Reserve already has declared it will continue its quantitative easing -- QE infinity, as some have dubbed -- by purchasing $40 billion of mortgage-backed securities per month until it sees substantial improvement in the labor market, which it doesn't define. And the Fed says it won't reverse its easing even when the economy begins to expand.
So, even a string of robust jobs reports is unlikely to cause Bernanke & Co. from backing away from QE or their intention to hold short-term rates near zero through mid-2015.
Numbers such as these are proving to be more of a political Rorschach Test, with partisans seeing what they want in them.
Perceptions aside, the fact remains that one in seven persons in the labor force can't find full-time work more than three years into a supposed economic recovery.
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