Why Did the Unemployment Rate Drop So Much?

by Phil Izzo, Wall Street Journal

The U.S. unemployment rate tumbled to 6.3% in April as the overall labor force posted its biggest decline since October. The question for the health of the labor market: Why did all those people drop out?

The jobless rate is calculated by taking the total number of unemployed people and dividing it by everyone in the U.S. who is working or looking for work — what the Labor Department calls the labor force. When both of those numbers decline, even if fewer people got jobs in the month, the unemployment rate falls. Both of those numbers can fall for many reasons, and they’re worrisome to different degrees.

The one that raises the biggest concern is when unemployed people get discouraged with the job market and give up looking for work. Once someone leaves the labor force, it’s much harder for them to eventually find work. Many never return. That was at least part of the reason for the decline in April. The number of workers who said they weren’t looking for work because they were discouraged over job prospects ticked higher. But the number remained below the average for all of last year, and doesn’t come close to accounting for the big drop in the labor force. Meanwhile, the total number of people who moved from unemployed out of the labor force also ticked up last month, but it was very close to the average for 2013, indicating no acceleration.

Another way to look to see if people are giving up is by looking at a broader measure of unemployment, known as the “U-6″ for its data classification by the Labor Department. That rate includes everyone in the official rate plus “marginally attached workers” — those who are neither working nor looking for work, but say they want a job and have looked for work recently; and people who are employed part-time for economic reasons, meaning they want full-time work but took a part-time schedule instead because that’s all they could find. The rate was 12.3% in April, falling the same 0.4 percentage point that the headline rate declined. When the U-6 is steady and the main rate is falling, it can suggest an underlying weak labor market. But when both are dropping together, it suggests that there might be other broader trends.

So if the labor force didn’t drop this month because of people giving up, what’s going on? One trend weighing on the labor force is people with jobs retiring, and last month there was an increase in the number of employed people who were no longer working or looking for work. That flow was at its highest level since October and the third highest since before the recession.

But that doesn’t explain why there are fewer unemployed people. The number of unemployed can fall because people got jobs, because they dropped out of the labor force, or it can fall just because fewer people decided to start looking for work. In April, one of the reasons the number of unemployed fell is because fewer people came off the sidelines to look for work. The number of people flowing from out of the labor force to unemployed was at its lowest level since 2008. Lots more people than usual decided to stay on the sidelines.

That isn’t a hopeful sign for the economy, as people who otherwise might want work aren’t encouraged enough to come off the sidelines. But it’s also less worrying than people giving up looking for work. Many new entrants to the labor force are younger people who will eventually come in, and are on the sidelines because they can be.

No one should read too much into one month’s moves in the labor force. Much of this month’s changes could be recalibrating after a couple of months of increases in the labor force participation rate, and some of it could be reversed next month. Meanwhile, while the details suggest the trend is worth watching, it’s not likely that this month represents a return to discouraged workers giving up and dropping out of the labor market.

Our irrational, harmful bias against the unemployed

By Peter Cappelli, Washingon Post

The persistent high level of unemployment in the six years since the Great Recession began is fast becoming the defining theme of this generation — and a leadership imperative that can no longer be ignored.

Friday’s news on job growth is good: an increase of 288,000 jobs this past month, bringing the unemployment rate to 6.3 percent, well down from its 30-year peak of 10 percent. The number of discouraged workers who want a job but have given up trying to find one is unchanged, however. When we include those in the mix, we’re still left with about three available candidates for every job vacancy out there.

The three and a half million people who remain “long-term unemployed” — that is, who have been out of work for more than six months — represent more than a third of unemployed workers. This is the highest it’s been since the Great Depression. Being out of work that long creates many problems, such as a loss of housing or health care, that not only cause hardship for individuals and their families, but also place even more burdens on public and private support systems.

Yet the tools for addressing the long-term unemployment problem are within our grasp. And chief among them is for employers to move past the stigma that the unemployed are somehow less qualified to hold a job. That bias persists in corporate human resources departments, but it is unsupported by evidence.

It’s maddening to see such imaginary fears become real barriers to solving our employment crisis. A field study by Northeastern University economics Ph.D. candidate Rand Ghayad and another led by Kory Kroft at University of Toronto sent out fake resumes to employers. The studies found strong evidence that employers’ willingness to consider applicants dropped like a stone after the candidates had been unemployed for six months. The companies actually preferred candidates with no relevant experience to those with a background in the field but who’d been out of work for a stretch.

Corporate leaders haven’t always viewed unemployment this way. Traditionally when the economy improved and created new jobs, businesses would look to the ranks of the unemployed to fill them. Until the mid-1980s, the term “layoff” actually referred to a temporary job loss — and employers were expected to rehire these workers as soon as the economy turned up again.

But by the 1990s, that stopped happening, and the term became a euphemism for permanent job losses instead. This coincided with the “jobless recoveries” that have accompanied every recession since then.

So if employers are not rehiring from the ranks of the unemployed now, how do they fill new jobs? By hiring from each other. This nonsensical game of musical chairs (I hire your workers, you hire someone else’s, and then they try to hire mine) would seem to be unsustainable. Sooner or later, one might think, employers will start to see the unemployed as a valuable alternative.

But in fact, they haven’t. Vacancies are simply staying open longer as employers wait to find individuals who are willing to move from other companies. And it has become so prevalent for employers to reject unemployed job candidates outright that last year the Equal Employment Opportunities Commission threatened to start investigating these cases.

Why won’t employers take long-term unemployed candidates more seriously? The reason has much to do with simple bias, and little to do with hard evidence.

One myth about the unemployed is that something must be wrong with a person who lost his or her job. The economists Bob Gibbons and Larry Katz found evidence of this when they studied how people who were laid off because their plant closed — an event that clearly wasn’t their fault. They had an easier time getting rehired than those who were laid-off for other reasons.

Meanwhile, the most intense bias against the long-term unemployed seems to be the result of yet another myth: If they were good, someone else would have hired them by now. All it takes is for enough hiring managers to think this same way, and no one would ever get a job.

The final reason for bias against the long-term unemployed is the notion that their skills must have gotten out of date by not working. That might be true for surgeons, whose manual dexterity can decline quickly, or maybe in tech fields where software has advanced to a new generation.

But few jobs are like that. Studies have found that the performance of new hires who had been unemployed for a long time was no different than that of new hires who came directly from jobs elsewhere. In fact, most jobs are so routine that taking a break from them — a sabbatical — is actually a good thing for improving work performance. Ironically, so few employees learn new skills on the job these days that it's much more likely that an unemployed person might have expanded his or her skill set, either by taking classes, mastering new software or learning new marketing techniques in the course of extended unemployment.

Ruling out job candidates because they have been unemployed imposes big costs on both citizens, who remain without jobs and income, and on the economy — not to mention on employers who are losing out on an entire population of talented candidates. There is no justification for doing it. In fact, it’s a form of discrimination.

Responsible business leaders should, at the very minimum, tell their human resource departments to update their hiring policies so they don’t filter applicants based on current employment status. The biggest problem is likely to be overcoming the prejudices of hiring managers, who often have little information about the real predictors of job performance and so rely on these false assumptions that unemployed candidates probably aren't good performers. A simple statement from leadership that this is not the case is often enough to change their approach.

Moreover, corporate leaders should support policy changes that provide tax credits for hiring the long-term unemployed. The credits would incentivize employers to look past their own biases, and would cost the government nothing unless an eligible candidate is hired. I reviewed the research for a group called the National Employer Opportunities Network, and we found that such tax credits are a cheap and ultimately beneficial way to move people off government programs.

Plus, in the process, it may actually increase total employment — and help stop the pointless game of musical chairs that hurts rather than helps everyone.

An overview of the April 2014 jobs report

May 2, 2014


The Bureau of Labor Statistics reported on May 2, 2014 that the official seasonally adjusted unemployment rate for April 2014 was 6.3 percent, down from 6.7 percent in March and February, and from 7.5 percent in April 2013.

Total non-farm employment increased by 288,000 during the month of April with seasonal adjustment, but increased by 1,152,000 during the month of April without seasonal adjustment.

The seasonally adjusted total non-farm job creation figure for March 2014 was revised upward to 203,000 from 192,000, and the seasonally adjusted total non-farm job creation figure for February 2014 was revised upward to 222,000 from 197,000. The unadjusted total non-farm job creation figure for March 2014 was revised upward to 944,000 from 941,000, and the unadjusted total non-farm job creation figure for February 2014 was revised downward to 741,000 from 743,000.

Breaking these figures down further, with seasonal adjustment, private sector employment increased by 273,000 during the month of April while government employment increased by 15,000. Without seasonal adjustment, private sector employment increased by 1,109,000 during the month of April while government employment increased by 43,000.

The seasonally adjusted private sector job creation figure for March 2014 was revised upward to 202,000 from 192,000, and the seasonally adjusted private sector job creation figure for February 2014 was revised upward to 201,000 from 188,000. The unadjusted private sector job creation figure for March 2014 was revised upward to 834,000 from 831,000, and the unadjusted private sector job creation figure for February 2014 was revised downward to 307,000 from 315,000.

The seasonally adjusted government job creation figure for March 2014 was revised upward to 1,000 from 0, and the seasonally adjusted government job creation figure for February 2014 was revised upward to 21,000 from 9,000. The unadjusted government job creation figure for March 2014 was not revised from 110,000, and the unadjusted government job creation figure for February 2014 was revised upward to 434,000 from 428,000.

The BLS keeps track of six unemployment rates, which are defined as follows and given without seasonal adjustments:

• U1: Persons unemployed 15 weeks or longer, as a percent of the civilian labor force. This rate is 3.3 percent for April 2014, down from 3.7 percent for March, 3.6 percent for February, and 4.3 percent for April 2013.
• U2: Job losers and persons who completed temporary jobs, as a percent of the civilian labor force. This rate is 3.2 percent for April 2014, down from 3.7 percent for March, 3.9 percent for February, and 3.9 percent for April 2013.
• U3: Total unemployed, as a percent of the civilian labor force (official unemployment rate). This rate is 5.9 percent for April 2014, down from 6.8 percent for March, 7.0 percent for February, and 7.1 percent for April 2013.
• U4: U3 plus discouraged workers, as a percent of the civilian labor force plus discouraged workers. “Discouraged workers” are those who have stopped looking for work because current economic conditions make them believe that no jobs are available. This rate is 6.3 percent for April 2014, down from 7.2 percent for March, 7.5 percent for February, and 7.6 percent for April 2013.
• U5: U4 plus all other persons marginally attached to the labor force, as a percent of the civilian labor force plus all persons marginally attached to the labor force. “Marginally attached” workers are those who would like and are able to work, but have not looked for a job recently. This rate is 7.2 percent for April 2014, down from 8.1 percent for March, 8.4 percent for February, and 8.5 percent for April 2013.
• U6: U5 plus total employed part time for economic reasons, as a percent of the civilian labor force plus all persons marginally attached to the labor force. This rate is 11.8 percent for April 2014, down from 12.8 percent for March, 13.1 percent for February, and 13.4 percent for April 2013.

As people who are employed part-time typically work about half as much as people who work full-time, it is useful to consider a "U5½," defined as the arithmetic mean of the U5 and U6 numbers. This measure would thus count people who work part-time but wish to work full-time as "half-employed." This rate is 9.5 percent for April 2014, down from 10.45 percent for March, 10.75 percent for February, and 10.95 percent for April 2013.

The BLS revised the Current Population Survey, which gathers the data needed to determine these rates, in 1994. Among the changes made, the U3 rate was named the new "official" unemployment rate, instead of the U5 rate. This revision also defined "long-term discouraged workers" out of official existence. With the inclusion of long-term discouraged workers, the SGS Alternate Unemployment Rate, which might be considered a "U7" rate, exceeds 23 percent.

The use of the U3 as the official definition exposes some holes in the BLS's thinking, because according to them, the following are true:

• A person who loses a full-time job but spends one hour each week mowing a lawn for pay is considered employed.
• A person who simply expresses interest in having a job is classified as unemployed.
• "Discouraged workers" are not classified as unemployed or even as part of the labor force.
• A sharp decrease in a worker's wages when forced to change jobs is not accounted for.

What this means is that the official unemployment rate can fluctuate because discouraged workers (who are not considered to be part of the labor force in the U3 measurement) who re-enter the labor force will cause the U3 rate to spike. The U3 rate can also dip temporarily when such people find temporary jobs and then lose them a month or two later. It also means that the U3 rate will go down when people give up looking for jobs, as 806,000 people did in April 2014. The labor force participation rate was 62.8 percent for April 2014, down from 63.2 percent for March, 63.0 percent for February, and 63.3 percent for April 2013.

Given the problems with the BLS unemployment rates, are they a useful measurement of how well the economy is performing, a wild guess that cannot be accurate despite the BLS's best efforts, or a deliberate fraud by the government? I report, you decide.

Discouraged Worker Dropouts Rise 783k, 80% Higher Than Nonfarm Payroll Jobs Added

Anthony B. Sanders – George Mason University

 

I was at Cornell University in Ithaca New York giving a presentation on mortgages on Friday when the jobs report was released, so I had to wait to read the report in its entirety. Here is my after-seminar report from Friday while waiting to go to dinner.

According to the Bureau of Labor Statistics, there are 9.75 million Americans that are “unemployed” and there are 92.02 million Americans that are “not in the labor force” for a grand total of 101.77 million working age Americans that do not have a job. Back in April 2000, only 5.48 million Americans were unemployed and only 69.27 million Americans were “not in the labor force” for a grand total of 74.75 million Americans without a job. That means that the number of working age Americans without a job has risen by 27 million since the year 2000.
 
However, the banner headline in the media was “288,000 Jobs Added!!” What was NOT in the headlines was that the number of people in the labor force fell by 806,000. In other words, 518,000 more workers LEFT the labor force than joined it in April.

In addition, the Number Of Workers Discouraged Not in Labor Force Searched For Work rose by 783,000 in April. That figure is back to the alleged “end” of the recession (according to the NBER). So, does this mean that the U.S. can announced that the Labor Market’s recession has ended?

No. The following economic indicators have declined since the end of 2008: real median household income, hourly wage growth (YoY), labor force participation rate, and M2 Money Velocity.

The Federal Reserve has attempted to depress interest rates with quantitative easing (balance sheet purchases and zero-interest rate policy), but the labor market is only back to end of recession levels.

According to the Taylor Rule, The Fed should be raising the Fed Funds Rate Target (should be 1.52%, but Fed Funds Target still at 0.25%). The point is for mortgage lenders is that the number of qualified borrowers have been reduced because of the recession and bubble burst and small increases in interest rates are unlikely to have an effect.

And lastly, of course, mortgage purchase applications remain lower than at the “end” of the recession in June 2009. Mortgage borrowers are as discouraged as unemployed workers.

Note: My colleague at University of South Carolina, Jean Helwege, wrote me and said “Maybe it is because of the run-up in the stock market and people can now stop looking for work.” Possibly, but BLS doesn’t ask those questions. What we do know if the mortgage purchase applications and originations remain depressed after the housing and credit bubble burst, and that is correlated with declining wages, real income and the number of discouraged workers.

Anecdotal evidence? I know two kids from Columbus OH whose grandfather gave them both large Trust Funds. They are in their 20s and one doesn’t work and the other dabbles in low paying jobs (part-time). But we don’t know how pervasive that is across the country.

Real jobless rate hits 12.4%, 800,000 leave labor force

Jerome R. Corsi , WND

 

NEW YORK – The Bureau of Labor Statistics announcement that unemployment has dropped from 6.7 percent in March to 6.3 percent in April was partly attributed to some 800,000 workers dropping out of the labor force last month, reducing the labor participation rate to 62.8 percent, a new low for the Obama administration.

After adjusting the BLS unemployment number to what is known as “U-6” – a measure that includes total unemployed, plus all persons marginally attached to the labor force, plus total part-time employed for economic reasons – unemployment in April was 12.3 percent.

The amount (not seasonally adjusted) of Americans not in the labor force in April rose to 92,594,000, almost 1 million more than the previous month. In March, 91,630,000 Americans were not in the labor force, which includes an aging population that is continuing to head into retirement.

According to John Williams, an economist known for arguing the government reports manipulate “shadow statistics” of economic data for political purposes, drops in the unemployment rate as reported by the BLS have become virtually meaningless.

“The broad economic outlook has not changed, despite the heavily-distorted numbers that continue to be published by the BLS,” Williams writes in his subscription newsletter on ShadowStats.com. “The unemployment rates have not dropped from peak levels due to a surge in hiring; instead, they generally have dropped because of discouraged workers being eliminated from headline labor-force accounting.”

Williams recreates a ShadowStats alternative unemployment rate reflecting methodology that includes “long-term discouraged workers.” In 1994 under the Clinton administration, the Bureau of Labor Statistics removed that category from those considered “unemployed” in any of the government’s unemployment measures.

The BLS publishes six levels of unemployment, but only the headline U3 unemployment rate gets the press. The headline number does not count as unemployed the “discouraged” workers who have not looked for work in the past four weeks because they believed no jobs were available.

Discouraged workers

Williams has demonstrated that it takes an expert to truly decipher BLS unemployment statistics.

The U6 unemployment rate is the BLS’s broadest measure. It includes those marginally attached to the labor force and the “under-employed” – those who have accepted part-time jobs though they are looking for full-time employment. Also included are short-term discouraged workers who have not looked for work in the last year because there are no jobs to be found.

Since 1994, however, the long-term discouraged workers, those who have been discouraged for more than one year, have been excluded from all government data.

Williams calculates his “ShadowStats Alternative Unemployment Rate” by adding to the BLS U6 numbers the long-term discouraged workers.

He argues that his ShadowStats Alternative Unemployment measure most closely mirrors common experience.

“If you were to survey everyone in the country as to whether they were employed or unemployed, without qualification as to when they last looked for a job, the resulting unemployment rate would be close to the ShadowStats estimate,” Williams told WND.

The headline BLS unemployment rate has stayed relatively low because it excludes all discouraged workers, Williams argues.

As the unemployed first become discouraged and then disappear into the long-term discouraged category, they also vanish from inclusion in the headline labor force numbers. Those workers, however, are ready to take a job if one becomes available. They are unemployed and consider themselves to be unemployed, but the government’s popularly followed unemployment reporting ignores them completely.

Below is a more complete unemployment table that includes the seasonally adjusted unemployment percentages for U3 unemployment as well as the same for U6 unemployment, followed by the ShadowStats Alternative Unemployment rate, comparing April 2013 for March and April 2014.

Economy of part-time jobs

In August 2013, the House Ways and Means Committee documented that seven out of every eight new employees under Obama have been part-time employees.

“The headlines citing last week’s jobs report as the lowest unemployment rate in years may have been technically accurate, but they are also reminders that looks can be deceiving,” the House Ways and Means report noted at the time.

“The reality, as you dig into the latest jobs data, reveals that few are finding the full-time work they want and need, and many are forced to accept part-time employment.”

To support the argument, the House Ways and Means Committee produced the following table drawn from Bureau of Labor Statistics.

The House Ways and Means Committee linked to an article Associated Press published Aug. 4, 2013, that stated: “So far this year, low-paying industries have provided 61 percent of he nation’s job growth, even though these industries represent just 39 percent of overall U.S. jobs, according to Labor Department numbers analyzed by Moody’s Analytics.”

AP economics writer Paul Wiseman noted part-time work had made up more than 77 percent of the job growth so far that year, with part-time work defined as being less than 25 hours a week.

Appearing on PBS’s “McLaughlin Group” in October 2013, real estate mogul Mort Zuckerman said that “88 percent of the jobs that have been created this year (2013) are part-time jobs.”

Jobs increase by 288,000 in April. Unemployment rate falls to 6.3%. But labor force falls sharply

by Meteor Blades for Daily Kos Labor

Calculated Risk

The Bureau of Labor Statistics reported the economy created a seasonally adjusted 273,000 new private jobs in April, and 15,000 new jobs in the public sector, the best overall gain since January 2012. The consensus of experts surveyed by Bloomberg earlier in the week had put expected new job creation at 215,000. Both full-time and part-time jobs are included in the total. The official unemployment rate fell to 6.3 percent, the lowest level since September 2008.

There were a couple of clouds over these significantly improved figures, however. The civilian labor force shed 806,000 people in April, a massive drop after rises in the three-month January-March period of 1.26 million. The employment-population ratio remained steady 58.9 percent. But the labor force participation rate fell to 62.8 percent, a 0.4 percent drop that returned it to its lowest level in 37 years.

The bureau's report always includes an alternative measure, U6. This calculation covers not just Americans with no job, but also those working part time who want full-time positions—the underemployed who are called "part time for economic reasons"—and workers who have looked for jobs in the past 12 months but not in the past four weeks. U6 fell from 12.7 percent in March to 12.3 percent in April. U6 does not include people who have not looked for work in the past 12 months.

Revisions changed the job numbers for February from 197,000 to 222,000 and for March from 192,000 to 203,000. That produced a three-month average of 238,000. At that rate, according to the Hamilton Project's Job Gap calculator, it would take until December 2017 to return to pre-recession employment levels at the same time as absorbing the people who enter the labor force each month.

The number of long-term unemployed who have been jobless for 27 weeks or more, fell to 3.5 million, 35.3 percent of all those accounted for who have no work.

The number of officially unemployed Americans fell sharply to 9.8 million. But there are the millions of discouraged workers not included in that count because they have left the workforce.

The payroll services company Automatic Data Processing had reported on Wednesday a seasonally adjusted gain of 220,000 private-sector jobs for April. ADP does not report on public-sector jobs and its estimated growth figures, despite a change in methodology in 2012, frequently aren't a close match with the BLS private-job figures.

Among other news in the April job report:

Demographic breakdown of official (U3) seasonally adjusted jobless rate:

• African American: 11.6 percent
• Latino: 7.3 percent
• Asian (not seasonally adjusted): 5.7 percent
• American Indian (data not collected on monthly basis)
• White: 5.3 percent
• Adult women (20 and older): 5.7 percent
• Adult Men (20 and older): 5.9 percent
• Teenagers (16-19): 19.1 percent

Duration of unemployment:

• Less than five weeks: 2.45 million
• 5 to 14 weeks: 2.35 million
• 15 to 26 weeks: 1.53 million
• 27 weeks and more:  3.45 million

Job gains and losses in selected categories:

• Professional services: + 75,000
• Transportation and warehousing : + 11,300
• Leisure & hospitality: + 28,000
• Information: - 3,000
• Health care: + 27,900
• Retail trade: + 34,500
• Construction: + 32,000
• Manufacturing: + 12,000
• Average weekly manufacturing hours fell 0.2 hours to 40.8 hours.
• Average work week for all employees on non-farm payrolls remained at 34.5 hours.
• Average hourly earnings for all employees on private nonfarm payrolls was unchanged at $24.31.

Here's what the seasonally adjusted job growth numbers have looked like in March for the previous 10 years.

April 2004: + 249,000
April 2005: + 363,000
April 2006: + 182,000
April 2007: +   78,000
April 2008: -  214,000
April 2009: -  684,000
April 2010: + 251,000
April 2011: + 322,000
April 2012: +   96,000
April 2013: + 203,000
April 2014: + 288,000

For some time now, the Economic Policy Institute has been keeping track of "missing workers." These people "who, because of weak job opportunities, are neither employed nor actively seeking a job. In other words, these are people who would be either working or looking for work if job opportunities were significantly stronger. Because jobless workers are only counted as unemployed if they are actively seeking work, these “missing workers” are not reflected in the unemployment rate."

EPI says there are currently 6.2 million of these missing workers. Here are two charts showing its findings:

The BLS jobs report is the product of a pair of surveys, one of more than 410,000 business establishments called Current Employment Statistics, and one called the Current Population Survey, which questions 60,000 householders each month. The establishment survey determines how many new jobs were added. It is always calculated on a seasonally adjusted basis determined by a frequently tweaked formula. The BLS report only provides a snapshot of what's happening at a single point in time.

It's important to understand that the jobs-created-last-month-numbers that it reports are not "real." Not because of a conspiracy, but because statisticians apply formulas to the raw data, estimate the number of jobs created by the "birth" and "death" of businesses, and use other filters to fine-tune the numbers. And, always good to remember, in the fine print, they tell us that the actual number of newly created jobs reported is actually plus or minus 100,000.

No Jobs, No Economy, No Prospects For Life

Paul Craig Roberts

Over the decades various administrations, seeking to improve their economic record, monkeyed with economic statistics to the point that the statistics are no longer meaningful.  

According to Friday's (March 7) payroll jobs report, the US economy created 175,000 new jobs in February.  If you believe that, I have a bridge in Brooklyn that I'll let you have at a good price. 

Even if 175,000 jobs were created in February--remember now, February was a cold month whose low temperatures are used to explain poor housing and retail sales performance, yet somehow created 40,000 more jobs than needed to keep up with population growth--that is an insufficient amount to drop the unemployment rate.

To see how screwed up US economic statistics are, consider the reported unemployment rate (U.3) of 6.7 percent in comparison with the fact that there are about 6 million Americans who have been unable to find a job and are no longer counted as unemployed. These millions of unemployed are not included in the reported rate of unemployment.

John Williams (shadowstats.com) reports that the true rate of US unemployment is around 23 percent.  

Rather than examine the issue, the presstitute financial media trumpets the government's propaganda. In America there is no more of a financial media, except for Pam Martens and Nomi Prins, than a print and TV media.

The Economic Policy Institute reports that there are 1,360,000 unemployed men and women under 25, 2,8000,000 unemployed men and women aged 25-54, and 1,640,000 unemployed men and women 55 and over who are not counted as unemployed, because they have been unable to find a job after searching a long time and have given up looking.

Just as "your" government and "your" prostitute media lie to you about Ukraine, Putin, Saddam Hussein, Gaddafi, Iran, Pakistan, Yemen, Palestine, NSA, spying, torture, 9/11, Obamacare, and literally everything under the sun, "your" government lies to you about the economy and hides from you the perilous state of your economic existence.  If you are not among the One Percent, you have no future in America.

Let us have a look at the 175,000 claimed jobs. Are these the promised high-paying jobs of the "New Economy" that Washington and its economists pimps guaranteed us would take the place of the offshored manufacturing and tradable professional service jobs?

Afraid not.  In the many years that I have been observing the monthly payroll jobs reports and the BLS's future jobs projections, I have never seen even one of the "New Economy" jobs.  They simply do not exist.  Yet, the economics profession, an extremely deluded collection of morons, still believes in these jobs.

Again--how many times have I reported this same result--here are the jobs of the "New Economy":   

Of the 175,000 jobs claimed, 13,000 are taxpayer-supported government jobs.

Of the 162,000 private sector jobs claimed, a mere 22,000 or 13.6% are goods producing jobs or which 15,000 or 68% are in construction  The other 140,000 are service jobs.

Are these service jobs the promised high-pay "New Economy" jobs?  No, but judge for yourself.  14,800 are jobs in wholesale trade. Food and beverage stores accounted for 12,000 new jobs. The Federal Reserve accounted for 7,800 jobs in order to continue rigging every financial market, thus replacing capitalism with Federal Reserve Central Planning.

Accounting and bookkeeping services (it is tax time) gave the economy a short-lived 15,700 jobs. There were 24,400 temporary help jobs. The old standby, education and health services, delivered 33,000 jobs. Leisure and hospitality produced 25,000 jobs of which 21,200 are waitresses and bartenders who live on tips.

This has been the jobs profile of the "world's only superpower" for the entirely of the 21st century. Washington, wallowing in its arrogance and hubris, is unconcerned with its economic base. Washington believes its own propaganda about the (non-existent) recovery and America's economic power.  

No Jobs For Americans

The Phony Recovery
by Paul Craig Roberts


The alleged recovery took a direct hit from Friday’s payroll jobs report. The Bureau of Labor Statistics reported that the economy created 74,000 net new jobs in December.

Wholesale and retail trade accounted for 70,700 of these jobs or 95.5%. It is likely that the December wholesale and retail hires were temporary for the Christmas shopping season, which doesn’t seem to have been very exuberant, especially in light of Macy’s decision to close five stores and lay off 2,500 employees. It is a good bet that these December hires have already been laid off.

A job gain of 74,000, even if it is real, is about half of what is needed to keep the unemployment rate even with population growth. Yet the Bureau of Labor Statistics reports that the unemployment rate fell from 7.0% to 6.7%. Clearly, this decline in unemployment was not caused by the reported 74,000 jobs gain. The unemployment rate fell, because Americans unable to find jobs ceased looking for employment and, thereby, ceased to be counted as unemployed.

In America the unemployment rate is a deception just like everything else. The rate of American unemployment fell, because people can’t find jobs. The fewer the jobs, the lower the unemployment rate.

I noticed today that the financial media presstitutes were a bit hesitant to hype the drop in the rate of unemployment when there was no jobs growth to account for it. The Wall Street and bank economists did their best to disbelieve the jobs report as did some of the bought-and-paid-for university professors. Too many interests have a stake in the non-existent recovery declared 4.5 years ago to be able to admit that it is not really there.

I have been examining the monthly jobs reports for a decade or longer. I must say that I as struck by the December report. Normally, a mainstay of jobs gain is the category “education and health services,” with “ambulatory health care services” adding thousands of jobs. In December the net contribution of “education and health services” was zero, with “ambulatory health care services” losing 4,100 jobs and health care losing 6,000 jobs. If memory serves, this is a first. Perhaps it reflects adverse impacts of the ripoff known as Obamacare, possibly the worst piece of domestic legislation passed in decades.

I was also struck by the report that the gain in employment of waitresses and bartenders, normally a large percentage of the job gain, was down to 9,400 jobs, which were offset by declines elsewhere, such as the layoff of local school teachers.

Aren’t Washington’s priorities wonderful? $1,000 billion per year in Quantitative Easing, essentially subsidies for 6 banks “too big to fail,” and nothing for school teachers. It should warm every Republican’s heart.

A tiny bright spot in the payroll jobs report is 9,000 new manufacturing jobs. The US manufacturing workforce has declined so dramatically since jobs offshoring became the policy of American corporations that 9,000 jobs doesn’t register on the scale. Fabricated metal products, which I think is roofing metal, accounted for 56% of the manufacturing jobs. Roofing metal is not an export. Employment in the production of products that could be exported, such as “computer and electronic equipment,” and “electronic instruments” declined by 2,400 and 3,500 respectively.

Clearly, this is not a payroll jobs report that provides cover for the looting of the prospects of ordinary Americans by the financial and offshoring elites. One can wonder how the BLS civil servants who produced it can avoid retribution. It will be interesting to see what occurs in the January payroll jobs report.

Inside the December Jobs Report

False Positives Revisited
by JACK RASMUS


In a blog post this past November 2013, this writer offered a contrarian analysis of the October 2013 government jobs report. That report indicated a jobs gain of 204,000 for October. While others heralded the number, claiming it was evidence that the US jobs market had (yet again) ‘turned the corner’, this writer forewarned the October job gains would prove temporary. My contrarian view was that the October job gains reflected a temporary surge in 3rd quarter U.S. GDP, which was itself based largely on a short term surge in business inventory accumulation that Qtr., with a lagged October hiring effect. The October jobs numbers were therefore “nothing to get excited about” and “can disappear quickly from the economy and may in fact do so by December should consumer spending come in well below expectations.” (see my ‘False Positives’ piece on this blog, of November 12, 2013).

It appears that ‘disappearance’ is what has happened, as last week’s December jobs report showed a net job gain of only 74,000. So what’s going on?

Last month’s jobs report shows not only that job creation has relapsed once again, but that weak job creation is not the only problem with the US labor market. While only 74,000 jobs were created, the labor force in the US shrunk by a further 347,000 workers in December as well. Hundreds of thousands of workers have been dropping out of the labor force in recent months. Both indicators—weak job creation and massive labor force exiting—reflect a labor market in deep trouble still, after nearly five years of so-called recovery.

The 347,000 exits from the labor force in December follow another, even greater exodus of 700,000 in October. Even if half of that number may be due to the government shutdown event of that month, it’s still another 350,000 exits. What the last three months shows, therefore, is that at least as many workers are leaving the labor force, as there are jobs are being created. A kind of a ‘churn’ is therefore taking place.

During the first six months of 2013, about two thirds of all the jobs created were ‘contingent’ jobs—i.e. part time and temp jobs—paying well below the average hourly rate. So in the first half of 2013 another kind of ‘churn’ was also taking place: full time jobs were being lost while part time and contingent jobs were being created. That also meant that higher paying jobs were being replaced by lower paying—a trend that has been going on for several years now.

That contingent hiring trend in the first half of the year has moderated somewhat in the second half of 2013, and replaced by the new trend of an accelerating exodus of workers from the labor force.

So it is not just stop-go, month to month job creation , but low-paid contingent job creation, and the massive number of workers leaving the labor force that together represent the major defining characteristics of the US labor market over the past year. It’s not a pretty picture.

The fact that between 700,000 and 1 million workers have left the labor force in just the last three months makes the unemployment rate as an indicator of the health of the jobs market an irrelevant statistic. Because of the way the US erroneously calculates the unemployment rate, a massive drop in the labor force results in a convenient fall in the unemployment rate. Those who leave the labor force are not included in the determination of the unemployment rate. They may be jobless, but aren’t included as unemployed in the government’s oxymoronic method for calculating unemployment. Consequently it is the mass exodus—not a big increase in actual jobs—that is lowering the unemployment rate.
Most serious economists know the unemployment rate is misleading, and don’t put much trust in the unemployment rate as an indicator. They supplement it by looking at other indicators: job openings, turnovers, quit rates, average work week, jobless claims, duration of unemployment, etc. But most of these are short term indicators, and can be volatile and unpredictable month to month.

A better indicator of the long term declining health of the US labor market is the labor force participation rate, and the related employment-to-population ratio. They show how well the US economy has been producing jobs longer term and as the population grows. And both these indicators continue to show a deep malaise in the US job market.

The labor force participation rate has steadily declined for years in the US, starting before 2008 and accelerating after. In June 2009, the declared official ‘end’ of the current continuing recession for the bottom 95% of us, the civilian labor force in the US totaled 154,926,000 workers. This past December 2013 the total labor force was 154,408,000. At first this appears as if there’s been no change in the labor force. However, one must include in this the estimate that, on average, about 100,000 to 150,000 new workers enter the labor force each month. Taking the low end 100,000 figure, it means in the four and a half years since June 2009, no less than 5.4 million workers have left the labor force. (100,000 x 12 months x 4.5 yrs). That’s about the same number of jobs created in the 4.5 year period.

In June 2009 approximately 139,800,000 workers were employed in the nonfarm labor force in the US. In December 2013, that number had risen to 144,400,000. So about 5 million new jobs have been created in the past 4.5 years, averaging 93,000 a month, while about 100,000 a month on average have also been leaving the labor force. (Numbers for both the labor force and nonfarm jobs above are from the US Labor Department’s ‘Current Population Survey’).

What we have therefore is a ‘great jobs churn’ going on in the US labor market since 2010—new entrants coming in at low pay, often contingent, service jobs while roughly the same number of workers leave the labor force who were once higher paid. And because the labor force drop outs aren’t counted as unemployed, it appears as if the labor market is improving since the unemployment rate is declining.

The December picture is even more dismal than the numbers above indicate. Both the 74,000 jobs and -347,000 drop in labor force that occurred in December 2013 are ‘statistics’. That is, they are not the actual numbers. Statistics are manipulations on raw data and actual numbers. They are ‘operations’ on the data, in most cased designed to smooth out the swings and fluctuations in the raw data that occur due to seasonality and other factors.

The raw data on jobs created and labor force exits for December show an even worse picture than that reported by the ‘stats’. The raw data show total nonfarm jobs actually fell by -246,000 instead of growing by 74,000, and the labor force declined by -502,000.

Whether statistically smoothed or the actual raw data, the jobs numbers for December were disastrous. Some argue the abysmal December numbers reflect a correction to the excessively high, 200,000 plus numbers for October and November. Others argue that the bad December numbers result from bad weather. But weather metaphors aren’t an explanation; they are an excuse for those without an explanation for what’s going on. And if the US government is consistently that inaccurate estimating jobs month to month—i.e. widely over-reporting one month and under-reporting another—then that should raise red flags about its methods to being with.

It may very well be that the Labor Department’s established methodologies for estimating jobs are today out of whack and unable to account for the fundamental changes in the labor markets that the recent deep recession has caused—such as the accelerating rise of contingent labor, the massive swings and exits from the labor force, the shift of millions from employment to disability insurance, a growing urban shadow economy that is misestimated in terms of jobs, methods for accounting for new business formation effects on job creation, the diversion of job creating investment from the US to offshore emerging markets and/or into financial asset speculation, the hoarding of trillions in cash by big multinational corporations, the increasing job displacement effect of capital investment, the negative effects of expanding free trade on jobs, and so on.

All this is not to say the December job statistics are purposely ‘falsified’ by the government in some conspiratorial fashion. The methods are perhaps just outdated. The Labor Department does report the raw data for jobs, for example. It is just that the capitalist media simply chooses to report the less severe statistical data as the sole ‘truth’, ignoring the raw data, and saying nothing about how changes in the real economy may be undermining the accuracy of the old statistical methodologies. Or the press hypes the weather as the cause of the poor job numbers, or suggests temporary technical factors are responsible.

However, neither technical factors nor bad weather are necessary to explain the poor December jobs numbers. In my initial ‘False Positives’ piece written in early November, it was suggested that the big surge in 3rd quarter 2013 GDP in business inventory accumulation likely explains much of the lagged big surge in October-November jobs. Business bulked up on inventories in the 3rd quarter, in what has proven to be an erroneous expectation of a big consumer spending surge over the recent holiday season. The production of those inventories, and expectations of follow-on retail sales in the closing months of 2013, explain the brief hiring surge in October-November—as well as the subsequent sharp slowdown (seasonally adjusted) or actual decline (raw data) in December jobs. The ‘False Positives’ piece predicted that the anticipated retail sales at year end would not follow the 3rd quarter inventory buildup—and that would all result in a major reduction in job creation by December.

Data for December just reported show an overall growth of retail sales of only 0.2%–which is a decline from a prior, already weakening, November number of 0.4%. In fact, retail sales have been consistently weak since the September ‘back to school’ event. Sales have slipped ever since. Sales this past holiday season were the worst since 2009, according to a ‘Market Watch’ business research review of the data, as of the week ending December 28.

At the heart of the December slowdown in retail were auto sales. Autos have been the major force holding up consumer spending throughout the past year. However now it appears the US auto market, after several years of historic discounting to boost auto sales, is now becoming relatively saturated. For example, GM’s auto sales declined 6% in December from the prior year and its truck sales even more.

While others note that non-auto retail sales rose in December, non-auto sales also reflected weak economic conditions as retailers introduced large discounts in the final weeks of the monthas it appeared consumers were reducing their expenditures. Those discounts will soon result in lower retail profits, and in turn therefore disappear in January-February 2014. Thus both autos and non-auto retail are therefore set to slow or even decline in coming months. In turn, the job creation picture could weaken still further in early 2014.

To summarize, what lies behind the December jobs slowdown, and the accelerating exodus of jobless workers from the labor force, is the likely pullback in business inventory spending at year end and the weak prospects for retail sales. Hiring slowed significantly at year end, and many of those that were hired in the fall—as inventories bulked up and big retail sales were anticipated—will soon be laid off once again.

Entering 2014, the picture will likely be one of further retreat in business inventory accumulation, more softness in retail sales, fewer hires, and a continuing slowdown in auto sales, and in turn fewer hires and more layoffs.

But the raw jobs numbers for early 2014 may be ‘smoothed out’ once again by the statistical changes forthcoming in early 2014, as the government is scheduled to change its ‘benchmarks’ for estimating jobs that could ‘statistically’ boost jobs by several hundred thousand. That statistical adjustment could effectively ‘drown out’ a continuing weak jobs creation picture when measured by the actual raw jobs data. It may appear the jobs picture is not as bad as it actually is in fact—when the raw data will show otherwise. But you won’t hear that from the mainstream press.

More Americans quit looking for work

Fri Sep 6, 2013 - PressTV

 

A disappointing jobs report in the United States shows a large drop in the share of Americans who are either working or looking for work.

The nation's jobless rate was 7.3% in August, down slightly from 7.4% in July, the Labor Department said Friday in its monthly employment report.

But that small improvement was mostly the result of discouraged jobseekers who have given up looking for work. People who are not actively looking for employment are not considered as unemployed.

Some 312,000 people stopped looking for work in August, pushing the labor force participation rate to 63.2 percent, the lowest since 1978.

The labor force participation rate measures how many healthy, working-age people 16 and older are working or looking for jobs.

The participation rate has been declining for years because millions of Americans have quit searching for a job, a result of the weakest economic recovery since the Great Depression.

Meanwhile ,employees in the United States continue to express elevated concerns about their job security nearly five years after the global financial crisis.

The poll shows that millions of US workers are still worried about having their benefits and wages reduced, their hours cut back, and being laid off.

Moreover, most of the jobs created during the sluggish economic recovery have been part-time jobs in low-paying industries like retail stores and restaurants.

Such jobs leave consumers with less money to spend than do better-paying positions in industries such as manufacturing and construction, which have mostly shed jobs the past four months.

Fewer Americans Will Work: What That Means for the Economy

By Christopher Matthews, TIME Magazine

July 22, 20130

With last year’s presidential election so focused on jobs and the economy, the American public probably knows more about the nuances of the unemployment rate than they ever have before. One particular of the official unemployment rate that received attention last year is that the Labor Department counts someone as unemployed only if he or she is actively looking for employment. Other folks who, for whatever reason, aren’t searching for work are considered not in the labor force.

The ratio between those considered in the labor force and the total working-age population is known as the “labor-force-participation rate.” And the reason why the unemployment rate has been able to fall from more than 10% in 2009 to 7.6% today despite middling job growth is that more and more Americans are dropping out of the labor force altogether.

As you can see from the chart below, this decline in the labor-force-participation rate is a trend that’s been going on for many years now. The primary driver of the overall trend is the aging workforce — many of those dropping out are simply retiring at around the normal age. But the trend accelerated during the recession, suggesting that many more people dropped out of the workforce than otherwise would have if the economy were in better shape.

As the economy improves, however, should we expect to see the participation rate bounce back? According to new analysis from Macroeconomic Advisers, it’s not likely. They estimate that roughly 45% of the recent decline in labor-force participation is a result of a weak economy, and the rest because of demographic factors. But as the economy improves, the workforce is going to continue to age, meaning that by 2015, when the Federal Reserve expects the economy to be back near full employment, the participation rate will remain where it is today.

In one sense this is good news because the economy doesn’t need to produce as many jobs per month to see reductions in the unemployment rate. But on a deeper level, it’s evidence that the high labor-participation rates that helped spur economic growth from the 1970s through the 1990s is a thing of the past. To put it another way, our economy is going to have to produce more with fewer people going forward, which — all else being equal — will slow economic growth.

So just how big of an effect will a smaller workforce have on the economy? In 2011, Harvard University’s Program on the Global Demography of Aging published a paper that tried to understand this question. Logic suggests that a workforce that has to support fewer nonworking individuals will be wealthier overall, and the study bears out that hypothesis. In the paper, economists David E. Bloom, David Canning and Günther Fink estimated how high-income countries (most of which have aging populations) would have grown from the 1960 to 2005 period if they had experienced population growth similar to the projections for 2005 to 2050. According to the report, if a high-income country like the U.S. had a per-person income of $10,000 in 1960, that income grew to $34,600 under the population growth we actually experienced. On the other hand, if the 1960 to 2005 period experienced the sort of population growth that we’re expected to see through 2050, that income would have grown only to $25,500.

This huge difference underscores how important population growth and workforce participation is to a country’s economy. If there are more people working in a country, and if a higher percentage of those people are productive, the whole country will be richer. (This is one reason why economists tend to support policies that increase immigration.)

Divided We Fall: a Tale of Two Economic Realities

The American Economy Continues to Slide, But There’s Plenty of Optimism at the Top
by JASON HIRTHLER


“Teach these boys and girls nothing but Facts. Facts alone are wanted in life.” These lines from schoolmaster Thomas Gradgrind open Charles Dickens’ Hard Times, which satirized the quantitative ethics of 19th century utilitarians. The simple premise of utilitarianism pioneered by Jeremy Bentham was that an action or policy should be judged by a single criterion: whether or not it contributed to the greatest happiness of the greatest number. It can feel, living in the early 21st century, that our leaders are operating on a principle of anti-utility, seeking the greatest happiness of the numerical few. The Washington establishment would dispute the truth of this claim, but then, as three examples will suggest, elites answer to a separate reality. To paraphrase Scott Fitzgerald, let me tell you about the very rich. Their facts are different from yours and mine.

The C-Suite and Main Street

Earlier this month, March job figures coughed up a slim volume of 85,000 new jobs, and the unemployment rate ticked down to 7.6 percent from 7.7 percent in February. As happens every month in this comical pantomime, the facts are shotgunned into the public consciousness by venerable propagandists like The New York Times and Washington Post, and the semi-articulate cable networks. The State Department then steps forward to impart a few rosy sentiments, although providing the necessary cautionary language lest our optimism overwhelm us.

The positivity of the official interpretation of the jobs report was belied by the 663,000 more citizen-consumers who slipped behind the black curtain of idle despair (47 percent of them women), not even bothering to seek work. According to Mike Gimbel, an analyst for socialist weekly Workers World, adding the decrease in the active labor force to the number of workers with insufficient part-time work, the unemployment rates skyrockets north of 20 percent. Nearly 90 million American adults are now out of the labor market, a new threshold of despair. (That’s nine times the number of unemployed at the height of the Great Depression, when there were only 123 million people in the country.) The jobs report complemented the specter of the sequester or a grand bargain still swirling overhead, promising to slice four trillion dollars from the economy over the next decade.

Yet a recent Financial Times survey of 400 global senior executives reports new optimism among business leaders, who project economic and industry improvements in the next six months. This peculiar optimism of corporate leadership, even amid the collapsing scenery of American society, is revealing on two levels. First, it evinces the degree to which Fortune 500s have uncoupled themselves from the American consumer market. The United States may be sliding toward Third World conditions, but expanding segments of Brazil and China are racing toward First World abundance. These markets, not ours, have laid claim to the attentions of corporate profiteers. What does it matter to the multinational if median income in the U.S. has climbed a mere $59 since 1966, when Brazil’s per capita income has nearly doubled since 1999? One salient example: Nearly seventy percent of Coca-Cola’s revenue comes from outside the U.S. In the first quarter of 2013, its international sales volume grew three times as fast as its American volume. Over the next five years, Coke plans to spend $30 billion on international expansion in China, India, Russian, and the Middle East. So long as one continent is in the ascendant, the fall of another is of little interest.

Second, the survey elicits the degree to which Wall Street financial markets have untethered themselves from Main Street industry. Industrial manufacturing has been in heavy decline as a percentage of American GDP, from a peak of 34 percent in the fifties to about 11 percent now. Perhaps as corollary, the GDP share held by the financial sector is on a steady uptick, now over eight percent and rising, while the total turnover of financial markets is many times our GDP. Derivatives, exempted from tepid Dodd Frank controls, are being purchased in bulk every month by the Fed, which is also holding interest rates at zero, ensuring banks can borrow for nothing, swivel on a dime and fleece credit card desperados at 18% a month. Why should corporate leaders care that it is slowly gaining a huge reserve army of American labor, to use Karl Marx’s term, which it can one day play off against some arriviste working class in a BRIC country?

Madison Ave and the 90 Million

Much like the heady delirium in the boardroom, these shadow facts too infrequently penetrate the optimistic consciousness of our vast marketing industry. As oil pipelines hemorrhage and radioactive waters sieve into the soil, we are admonished by a new nationally broadcast ad for the Acura RXL: “You wake up in your luxury bed and slide out of your luxury sheets. You get into your luxury shower and dry off with your luxury towel. You put on your luxury suit and your luxury watch. You grab your luxury coffee from your luxury coffee maker, and add some luxury sugar. You step out of your luxury house and step into your luxury car…which makes everything else seem ordinary.” Another class of commercials trots out sonorous-voiced actors like Tommy Lee Jones to lean on farm fences and talk about retirement planning, while Matt Damon’s soothing voice reminds how “common sense” is all we need to build a halcyon tomorrow. It always seems a healthy number of the wide-grinned retirees portrayed zooming down the California coast are minorities, often the African-Americans who lost half their wealth during the housing collapse.

What must the mass unemployed think as the television drones forth with this condescending drivel? The Boston Globe reports on a study by the Urban Institute that claims Generation X and Y—the two generations following the Boomers—have saved less than their parents did in their early adulthood: “Stagnant wages, diminishing job opportunities, and lost home values are behind the issue and have kept young Americans from saving even as the economy doubled from the early 1980s, the study found.”

The drear state of the economy is compound by what the young do to counteract it—take out loans. The Globe story notes, ‘’‘People in my generation are of the opinion that it’s OK to take out tens of thousands of dollars in student loans,’’ said Young, who graduated in May 2012. ‘‘That puts them in debt right away.’’’ The article concludes that, with no savings, Gen X and Y will rely more on the social safety net, the very programs millionaires Barack Obama and John Boehner are so anxious to cut. But millionaires can afford to be utopian, hence the blandishments about the road to a stronger America.

If the actor in the Acura commercial were a genuine luxury guy living a genuine luxury life, and his address were placed on a title screen at the end of the ad, I suspect a large mob drawn from the 90 million unemployed would soon descend on his luxury house. As Obama rather imperiously told a frightened assembly of derivatives kingpins during the collapse, “I’m the only thing standing between you and the pitchforks.” Of course, the commercial is just another tawdry piece of condescension foisted on the masses from Madison Avenue, but it artlessly demonstrates the second disconnect in our storyline—between the media and the masses. The Acura RXL lists at $48,450. Average per capita debt is $47,500.

The White House and the Poor House

It was Freud who said that if you wanted to know human nature, simply reverse its clearest moral injunctions. If we are forbidden to steal, it is because we are thieves. If adultery is verboten, it is because we are covetous. By that measure, perhaps we can discern the aims of Washington by reversing the desires of the American public. (Much like we can find countries that receive the most American aid by seeking out the nations with the most egregious human rights abuses.)

Testing Freud’s formula bears some interesting results. According to relentlessly consistent polling numbers, we oppose cuts to social spending such as education and Social Security and favor national health insurance provided by the government. Yet the policies we receive from either wing of the Business Party are healthcare reform that will leave millions still uninsured (but usefully fined), higher defense spending, lower education spending, and aggressive interventions across the planet. Far less than half of Americans want to prioritize immigration and gun control, but these topics dominate media coverage. We want jobs and a strong economy before a level deficit. Yet we get an austerity package designed to slow the economy and job growth. Even though our paychecks have flatlined for forty years, and our schools are growing poorer and our prescriptions dearer. Even though sixty percent of the jobs created by the stimulus were part time, and the piddling median wage in 2011 was $26,965.

At a macro level, the Freudian formula works the same. The Journal of the Academy of Arts & Sciences recently reported on the disparity between public opinion and policy. In polling, large majorities have favored federal policies to cut greenhouse emissions, even supporting tax breaks for corporations that reduce emissions—a stance that reflects global consensus on the reality of climate change and the need to do something about it. In fact, 118 countries have set national targets for renewable energy (RET). As the formula predicts, the U.S. has no national renewable energy target, placing it on the regressive right of the global political spectrum.

While nearly two thirds of Americans favorable developing renewables over oil, gas, and coal, we churn ahead with oil, gas, and coal exploration and encourage states to draft their own environmental targets. Extraction is keeping the federal government too busy to deal with such peripheral concerns. Substitute your own favorite federal failing and watch the formula work for you. Rather than prosperity, austerity. Rather than due process, solitary confinement. Instead of higher wages for Main Street, higher earnings for Wall Street. In lieu of jobs, offshoring. Instead of substance, rhetoric.

Here lies our third disconnect, between government and the people. Like the Wall Street and Madison Avenue realities, individuals in the highest echelons of federal power are wildly prosperous, moving seamlessly between the precincts of the state and the serene towers of global enterprise. They are showered with the patronage of both while employed by either, such that the distinctions between the two become opaque and nominal. The goals are common—dominion. The profits are shared—the costs socialized. And the media continually rehabilitates the profile of power like the Soviets rehabbed victims of the gulag—ex post facto. The facts of life for the obscenely rich are not like the facts for the majority. They are doing fabulously. Witness the outpouring of mawkishness in the wake of Margaret Thatcher’s death. In her first decade in power, she cut taxes on the wealthy by half while the income of the poor plummeted by forty percent. Who penned those lavish encomiums to sit atop Thatcher’s grave? Who but the survivors?

Interesting that the quote from Fitzgerald, about the rich being different from the rest of us, was from a set of short stories called All the Sad Young Men, largely about the rich and the shimmering anomie of the world they inhabited. Yet if the surveys, media, and policies on offer are any indication, all the sad young men have shed their survivor’s guilt and moved on. Life is a fairy tale waiting to be bought. Darker realities, like the distant wail of an ambulance, hardly register anymore.

Minding the reality gap

Minding the Gap
Matt Asher - Probability and statistics blog

Officially, unemployment in the US is declining. It’s fallen from a high of 9.1% a couple years ago, to 7.8% in recent months. This would be good news, if the official unemployment rate measured unemployment, in the everyday sense of the word. It doesn’t. The technical definition of “U3″ unemployment, the most commonly reported figure, excludes people who’ve given up looking for work, those who’ve retired early due to market conditions, and workers so part time they clock in just one hour per week.

Most critically, unemployment excludes the 14 million American on disability benefits, a number which has quadrupled over the last 30 years. If you include just this one segment of the population in the official numbers, the unemployment rate would double. On Saturday, This American Life devoted their entire hour to an exploration of this statistic. Russ Robert’s, who’s podcast I’ve recommend in the past, discussed the same topic last year. Despite the magnitude of the program and the scale of the change, these are the only outlets I know of to report on the disability number, and on the implications it has for how we interpret the decline in U3 unemployment.

Targeting the number, not the reality

Statistics, in the sense of numerical estimates, are measures which attempt to condense the complex world of millions of people into a single data point. Honest statistics come with margins of error (the most honest indicate, at least qualitatively, a margin of error for their margin of error). But even the best statistical measures are merely symptoms of some underlying reality; they reflect some aspect of the reality as accurately as possible. The danger with repeated presentations of any statistic (as in the quarterly, monthly, and even hourly reporting of GDP, unemployment, and Dow Jones averages), is that we start to focus on this number by itself, regardless of the reality it was created to represent. It’s as if the patient has a high fever and all anyone talks about is what the thermometer says. Eventually the focus becomes, “How do we get the thermometer reading down?” All manner of effort goes into reducing the reading, irrespective of the short, and certainly long-term, health of the patient. When politicians speak about targeting unemployment figures, this is what they mean, quite literally. Their goal is to bring down the rate that gets reported by the Bureau of Labor Statistics, the number discussed on television and in every mainstream source of media.

Politicians focus on high profile metrics, and not the underlying realities, because the bigger and more complicated the system, the easier it is to tweak the method of measurement or its numeric output, relative to the difficulty of fixing the system itself. Instead of creating conditions which allow for growth in employment (which would likely require a reduction in politicians’ legislative and financial powers), the US has quietly moved a huge segment of its population off welfare, which counts against unemployment, and into disability and prisons — the incarcerated also don’t count in U3, whether they are slaving away behind bars or not.

How metrics go bad

Over time, all social metrics diverge from the reality they were created to reflect. Sometimes this is the result of a natural drift in the underlying conditions; the metric no longer captures the same information it had in the past, or no longer represents the broad segment of society it once did. For example, the number of physical letters delivered by the postal service no longer tracks the level of communication between citizens.

Statistics and the reality they were designed to represent are also forced apart through deliberate manipulation. Official unemployment figures are just one example of an aggressively targeted/manipulated metric. Another widely abused figure is the official inflation rate, or core Consumer Price Index. This measure excludes food and energy prices, for the stated reason that they are highly volatile. Of course, these commodities represent a significant fraction of nearly everyone’s budget, and their prices can be a leading indicator of inflation. The CPI also uses a complex formula to calculate “hedonics,” which mark down reported prices based on how much better the new version of a product is compared to the old one (do a search for “let them eat iPads”).

I don’t see it as a coincidence that unemployment and inflation figures are among the most widely reported and the most actively manipulated. In fact, I take the following to be an empirical trend so strong I’m willing to call it a law: the greater the visibility of a metric, the more money and careers riding on it, the higher the likelihood it will be “targeted.” In this light, the great scandal related to manipulation of LIBOR, a number which serves as pivot point for trillions of dollars in contracts, is that the figure was assumed to be accurate to begin with.

Often the very credibility of the metric, built up over time by its integrity and ability to reflect an essential feature of the underlying reality, is cashed in by those who manipulate it. Such was the case with the credit ratings agencies: after a long run of prudent assessments, they relaxed their standards for evaluating mortgage bundles, cashing in on the windfall profits generated by the housing bubble.

Why we don’t see the gaps

It might seem like the disconnect between a statistic and reality would cause a dissonance that, once large enough to be clearly visible, would lead to reformulation of the statistic, bringing it back in line with the underlying fundamentals. Clearly there are natural pressures in that direction. For example, people laid off at the beginning of a recession are unlikely to believe that the recovery has begun until they themselves go back to work. Their skepticism of the unemployment figure erodes its credibility. Unfortunately, two powerful forces work against the re-alignment of metric and reality: the first related to momentum and our blindness to small changes, the second having to do with the effects of reflexivity and willful ignorance.

In terms of inertia, humans have a built-in tendency to believe that what has been will continue to be. More sharply, the longer a trend has continued, the longer we presume it will continue — if it hasn’t happened yet, how could it happen now? Laplace’s rule of succession is our best tool for estimating probabilities under the assumption of a constant generating process, one that spits out a stream of conditionally independent (exchangeable) data points. But the rule of succession fails utterly, at times spectacularly, when the underlying conditions change. And underlying conditions always change!

These changes, when they come slowly, pass under our radar. Humans are great at noticing large differences from one day to the next, but poor at detecting slow changes over long periods of time. Ever walked by an old store with an awning or sign that’s filthy and falling apart? You wonder how the store owner could fail to notice the problem, but there was never any one moment when it passed from shiny and new to old and decrepit. If you think you’d never be as blind as that shop keeper, look down at your keyboard right now. As with our environment, if the gap between statistic and reality changes slowly, over time, we may not see the changes. Meanwhile, historical use of the statistic lends weight to it’s credibility, reducing the chance that we’d notice or question the change — it has to be right, it’s what we’ve always used!

The perceived stability of slowly changing systems encourages participants to depend on or exploit it. This, in turn, can create long term instabilities as minor fluctuations trigger extreme reactions on the part of participants. Throughout the late 20th century and the first years of the 21st, a large number of investors participated in the “Carry Trade,” a scheme which depended on the long term stability of the Yen, and of the differential between borrowing rates in Japan and interest rates abroad. When conditions changed in 2008, investors “unwound” these trades at full speed, spiking volatility and encouraging even more traders to exit their positions as fast as they could.

These feedback loops are an example of reflexivity, the tendency in some complex systems for perception (everyone will panic and sell) to affect reality (everyone panics and sells). Reflexivity can turn statistical pronouncements into self-fulfilling prophecies, at least for a time. The belief that inflation is low, if widespread, can suppress inflation in and of itself! If I believe that the cash in my wallet and the deposits in my bank account will still be worth essentially the same amount tomorrow or in a year, then I’m less likely to rush out to exchange my currency for hard goods. Conversely, once it’s clear that my Bank of Zimbabwe Bearer Cheques have a steeply declining half-life of purchasing power, then I’m going to trade these paper notes for tangible goods as quickly as possible, nominal price be damned!


Don’t look down

If perception can shape reality, then does the gap between reality and statistic matter? Clearly, the people who benefit most from the status quo do their best to avoid looking down, lest they encourage others to do the same. More generally, though, can we keep going forward so long as we don’t look down, like Wile E. Coyote chasing the road runner off a cliff?

The clear empirical answer to that questions is: “Yes, at least for a while.” The key is that no one knows how long this while can last, nor is it clear what happens when the reckoning comes. Despite what ignorant commentators might have said ex post facto, by 2006 there was wide understanding that housing prices were becoming un-sustainably inflated. In 2008, US prices crashed back down to earth. North of the border, in Canada, the seemingly equally inflated housing market stumbled, shrugged, then continued along at more level, but still gravity-defying trajectory.

The high cost of maintaining the facade

Even as the pressures to close the gap grow along with its size, the larger the divergence between official numbers and reality, the greater the pressures to keep up the facade. If the fictional single entity we call “the economy” appears to be doing better, politicians get re-elected and consumers spend more money. When the music finally stops, so too will the gravy-train for a number of vested interests. So the day of reckoning just keeps getting worse and worse as more and more resources go into maintaining the illusion, into reassuring the public that nothing’s wrong, into extending, pretending, and even, if need be, shooting the messenger.

It’s not just politicians and corporations who become invested in hiding and ignoring the gap. We believe official statistics because we want to believe them, and we act as if we believe them because we believe that others believe them. We buy houses or stocks at inflated prices on the hope that someone else will buy them from us at an even more inflated price.

My (strong) belief is that most economic and political Black Swans are the result of mass delusion, based on our faith in the quality and meaning of prominently reported, endlessly repeated, officially sanctioned statistics. The illustration at the beginning of this post comes from a comic I authored about a character who makes his living off just this gap between official data and the reality on the ground, a gap that always closes, sooner or later, making some rich and toppling others.