Friday, February 3, 2012

8.3%: Is This Really Good News?

Today the President Obama and his administration received some good news. Job creation was way ahead of expectations and the unemployment rate dropped. The labor department had expected the economy to create about 150,000 new jobs; however, more than 200,000 new jobs were created. Couple that with the decrease of the unemployment rate to 8.3%, all in all, this is good news for Obama.

Of course, the lame stream media is not going to report that dark cloud that this silver lining surrounds. While 200,000 thousand new jobs really does sound good, that these new jobs are mostly low paying service industry jobs kind of puts a damper on things. (More on this in a moment)

Also lost in the hubbub over the unemployment rate decrease is really how this came about. It really isn’t about how many jobs were created but rather how many people have decided to no longer search for jobs.

A month ago, we joked when we said that for Obama to get the unemployment rate to negative by election time, all he has to do is to crush the labor force participation rate to about 55%. Looks like the good folks BLS heard us: it appears that the people not in the labor force exploded by an unprecedented 1.2 million. No, that’s not a typo: 1.2 million people dropped out of the labor force in one month! So as the labor force increased from 153.9 million to 154.4 million, the non institutional population increased by 242.3 million meaning, those not in the labor force surged from 86.7 million to 87.9 million. Which means that the civilian labor force tumbled to a fresh 30 year low of 63.7% as the BLS is seriously planning on eliminating nearly half of the available labor pool from the unemployment calculation. (Source: Zero Hedge)

If I remember my statistics correctly, to get the unemployment rate to drop one tenth of a percent, monthly job creation has to be somewhere north of 340,000. The unemployment rate dropped two-tenths of a percent, which should mean about 680,000 jobs were created. Something is not adding up. And my brain is beginning to hurt thinking about it.

As I mentioned above, it looks like many of these new jobs created are of the lower paying service industry type jobs. These are the jobs that pay at or just above minimum wage. Federal minimum wage is currently at $7.25 an hour. While it is true that few employers actually pay minimum wage, especially to adult workers with experience, the wage paid is not all that high. It certainly is not enough to cover household expenses, especially for those who were earning considerably higher before the recession took hold.

Before you think I am going on a rant about how the minimum wage needs to increase to a “living wage” I do want to stomp that idea down. I believe that minimum wage jobs are for entry level positions, for people getting their first-ever job, or for folks who want to supplement the family income. This is more to point out that while unemployment might have seen a decrease, it isn’t all wine and roses.

Let’s say you were earning $45,000 a year before you got laid off. Not a particularly high wage, but decent enough to get the bills paid. After struggling to find work, you finally land that job working at Sears or K-Mart earning $12.00 an hour (this is high end for retail). Your annual income is now just short of $25,000 a year if you are lucky enough to get on full time. I am not including overtime because retail is notorious for highly discouraging overtime for its employees on wages. Retail also isn’t known for hiring full time employees.

So now you have this job and are no longer considered unemployed. BUT, you are now earning $20,000 less than what you were earning a year or two ago. There goes the family life style. Kids removed from soccer programs, phones cut off to a bare minimum, evenings out with the family or your significant other are reduced to nothing, improvements to the home and repairs put off, and other things you had enjoyed before are reduced or eliminated.

When you look at it closer, you see that this is $20,000 less each year that is entering the economy. For the sake of argument let us use the 200,000 jobs created as a baseline. If all of these people hired had the same story as the scenario developed above we are talking about $4,000,000,000 less in the economy than before all the layoffs and job cuts happened. Now I realize this is over simplifying the issue a considerable amount. I am sure there have been people hired at wage levels higher than $12 an hour, but on the flip side there were many people who were earning way more than $45,000 a year who have struggled to find work.

Maybe some people can get excited about the drop in the unemployment rate (like the Obama supporters in the Lame Stream Media) but I can’t. Where are the high paying jobs? They are not being created fast enough to help this economy recover robustly.


  1. The 1.2 million number doesn't really mean anything, it was just a population adjustment.

  2. Mike, it is certainly not as simple as 1.2 million people entering the work force. Please note the graphs at the link in my post. One needs to question, in times of decreasing population growth and an aging population, why would the annual population adjustment jump as much as it did? In none of the previous years did we see the same kind of population adjustment at the turn of a new year.

    Also it must be noted that along with the annual population adjustment is the significant decrease in actual participation in the labor force, which has seen a SIGNIFICANT decrease over the past three to four years.

    Based on the premise presented at the link you provided, this was the largest one population jump in one year, which simply not the case.

    The decrease in labor force participation rates cannot be solely excused by the annual adjustment.

    All I was trying to point out is that the decrease in unemployment isn’t as nearly as wine and rose as the main stream media would lead us to believe.

  3. Righty,

    BLS is correctly the Bureau of Lying Statisticians. If unemployment numbers were calculated as they were in 1994 and before unemployment totals 22% today.

    But gosh, that just isn't gonna make it for the Pres. So let's lie some more.

    Also look at U6. Amazingly U6 measures unemployment at 15+%. O wait! Even that is too high to talk about.

    Can you say propaganda? Go on, try it...PRAW- PAH- GANDA.


  4. Winston, thank you for the updated numbers. I think most people do realize that the 8.3% isn't really telling the whole truth about the situtation. I just heard that Interstate Trucking is in the process of laying off about 1,000 drivers across the nation. Not positive the source is realiable (no reason to doubt, just no way to check the numbers yet), but if a trucking firm is letting people go, then this doesn't bode well for the overall economy. Transportation is normally one of the first sectors to see recovery. As orders for goods are increased, those products have to get to market, which get moved by truck.

    I really do see a dip in the next several months, but it probably won't be reported until after the election. Then all heck will break lose.

    1. Righty,

      The other stat that got my attention recently is the Baltic Dry Index. It measures bulk cargos at sea and cost of moving many commodities. It recently hit a lower low than after the 2008 debacle.

      Given the skeery numbers I absolutely agree that there soon will be more trouble in paradise.


  5. Winston, that number you provided sure seems to line up with the not so fast rising trucking numbers. I might try to tremember to ask thsoe in the know if they ahve seen a decrease in load counts over the recent few months.