[IP] more on jobless rate underreported by us dept of labor
Begin forwarded message:
From: Barry Ritholtz <ritholtz@xxxxxxxxxxxxx>
Date: May 29, 2004 7:26:01 AM EDT
To: Dave Farber <dave@xxxxxxxxxx>
Cc: Charles Jarrell <bellmac@xxxxxxxxxxxxxxxx>
Subject: RE: jobless rate underreported by us dept of labor
Hey Dave and Charles,
Its a bit more complicated than the BLS reported data. Allow me a brief
explanation for the non-economists out there. There are 3 primary
measures of unemployment. These are admittedly superficial and can
often be misleading. Drilling down beneath the headlines is difficult
-- its not a skill set the average person (or economist, for that
matter) has.
1) Employment Situation: Its a monthly measure of "Nonfarm payroll
employment" and it is just what it sounds like. Its a measure of
percentage of the labor pool that is employed.
The rub here is that the labor pool shrinks and grows in ways the
government often misses. Example: When frustrated job seekers "give up"
looking for work, while they are still unemployed, they have dropped
out of the labor pool (Not working, not looking for work). The
unemployment rate actually goes down as people gives up job hunting
(Same # unemployed + < labor pool = < % of unemployed !)
Additionally, the Bureau of Labor Statistics (www.BLS.gov) isn't very
good at quantifying under-employment. An industrial manager loses his
$90k a year job, and eventually is hired elsewhere at half his salary
in a different field. He's under-employed, but the stats show him as
holding a job: He lost one, he found one, net impact is 0. (Obviously,
the impact is much greater than zero). Nor does the BLS do a very good
job catching new trends. When older, recently retired workers
re-entered the labor force after the market crash (their retirement
accounts got whacked), the BLS was slow to pick that up.
2) New Jobless Claims is another one of those misleading headline
statistics. They ae released each Thursday, and they represent the
number of new applications for unemployment benefits. Good News: They
have been trending downwards from nearly 500k / wk to under 350k. Bad
News: There are some estimated 2-3 million exhaustees -- workers who
have used up all of their unemployment insurance benefits and are still
unemployed -- but do not show up in this statistic.
Additionally, there is the Challenger Job-Cut -- its a monthly report
on the number of announced corporate layoffs. The BLS also has a Mass
Layoff (50 or more) report, which they tried to kill a few years ago
(It makes the administration look bad).
3) Augmented Unemployment: This was invented by Fed Chair Alan
Greenspan in the late 90s to catch the data of unemployed missed by
traditional measures. Its presently reading about 8.5%, while in Europe
its closer to 11%.
You can read more about it at "The Big Picture"
http://bigpicture.typepad.com/comments/2004/01/augmented_unemp.html
Finally, you can track these (and other econ related releases) via the
web:
Barrons has the best calendar of these data releases. But they also
drill down below the headlines in jargon free English, and explain "why
investors care" about the news. (And its free):
http://online.wsj.com/public/page/0,,barrons_econoday,00.html
I'm not an economist (but I play one on TV); Here are a few of the
actual Economists I read regularly:
Arnold Kling (http://econlog.econlib.org/) has a thoughtful, right of
center weblog I peruse regularly. Kling invented "LUCY" -- the labor
utilization capacity index which has been a good forward looking
indicator of job creation.
John Irons runs the comprehensive Argmax (http://argmax.com/mt_blog/),
a rich site with lots of good data and details (He's politically across
the aisle from Kling). Good pick ups on news, data and definitions.
Lastly, I have a report coming out next week analyzing the
interrelationship between the apparent improvement in jobs data and the
very poor polling on economic matters for the incumbent President. If
there is any interest, I will post it on line for IP readers.
Have a good weekend,
Barry L. Ritholtz
Chief Market Strategist
Maxim Group
britholtz@xxxxxxxxxxxx
(212) 895-3614
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