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Friday, February 4, 2011

Houdini Economics - Unemployment Rate Drops Sharply But Almost No New Jobs Created

Good political news for the Obama administration.  The Bureau of Labor Statistics has released a report for January 2011 showing that the unemployment rate dropped to 9%, with over 500,000 people finding jobs.

But only 36,000 new jobs were created in the economy, which essentially is none given the magnitude of the labor force:

"The unemployment rate fell by 0.4 percentage point to 9.0 percent in January, while nonfarm payroll employment changed little (+36,000), the U.S. Bureau of Labor Statistics reported today. Employment rose in manufacturing and in retail trade but was down in construction and in transportation and warehousing. Employment in most other major industries changed little over the month."
I've linked the report, which itself has various underlying statistical tables linked.

I never could figure out how Houdini got out of the chains.  So how did the unemployment rate drop sharply without the creation of new jobs?

Update:  I'm not sure if this is the key, so correct me if you think I am wrong, but it looks like BLS started using new labor force numbers starting January 2011, based on the most recent census data:
"Effective with data for January 2011, updated population estimates have been used in the household survey. Population estimates for the household survey are developed by the U.S. Census Bureau. Each year, the Census Bureau updates the estimates to reflect new information and assumptions about the growth of the population during the decade. The change in population reflected in the new estimates results from adjustments for net international migration, updated vital statistics and other information, and some methodological changes in the estimation process."
In Table B just below this disclosure, BLS describes the effect of the data change on the December 2010 numbers, and low and behold, it decreases the "civilian labor force" by 504,000 people.  Would this downward adjustment explain why over 500,000 appeared to find jobs even though almost no new jobs were created?  If this is correct, then BLS simply took 504,000 people out of the labor force which would have the effect of dropping the unemployment rate (which is based on people in the labor force).  Tell me why I am wrong, because I must be wrong, it cannot be so simple, or I must be misreading something.

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  1. Hmm. Yesterday Gallup reported that unemployment rose slightly to 9.8%. Strange, isn't it?


  2. It didn't. It'll be adjusted upwards in a few weeks, "unexpectedly" of course. And the Make Believe Media won't be interested at all.

  3. I think for political purposes the number of illegal immigrants has been overestimated by the census bureau and they've stopped that AND a significant number of illegals have self-deported. This may explain some of the puzzle.

  4. Prof. Jacobson, I know you're right, but I'm no statistician so can't prove it. But we know this regime lies about EVERYTHING and we know unemployment continues to go up, not down, no matter how many people one removes from the job market. We are at nearly 15 million Americans out of work who want to be working, whether they've given up looking or not.

    This regime relies on hocus pocus and micro attention spans. All that matters is the headline right now - 1 day or 1 week from now is just so in the distant future. CC is right - it will be quietly adjusted upwards (with the obligatory "unexpectedly" slipped in by the faux media) eventually. Unless they just keep removing the unemployed from the labor force until 40% of the country is out of work and the regime says we are at 0% unemployment ;-)

  5. To demonstrate how dire the unemployment picture is in the US, all one must do is compare applicable numbers to those found in Canada. In the month of January, there were 60,000+ new jobs created in Canada, which is the equivalent of over 500,000 jobs, relative to the US economy. That would then be 36,000 in the US compared to the equivalent of 500,000 in Canada. Yet, somehow, the Obama machine and their partners in the MSM, will spin this to be a positive reflection of Obamanomics. Rather pathetic.

  6. Soviet style accounting for our new WTF Soviet style economy.

  7. The figures don't lie but the liars figure....

  8. Go to this table:http://www.bls.gov/web/empsit/cpseea03.pdf
    You are correct. 500K + were dropped from the
    "participating" labor force. Look at previous months. This is the largest drop in participating
    in a long time.

  9. "The weather was too bad for people to go to work, but it didn't matter for when it came to people registering for unemployment. And over 500,000 people apparently disappeared in snow drifts, and are no longer counted in the labor force.

    So, there are plenty of new jobs out there. The people just could not get them because of the snow.

    O tempora. O mores. O Bernanke. O Obama."

    Jesse's Café Américain

  10. Personally, I don't pay that much attention to the size of the participating labor force, as that number can change (and legitimately so) due to changes in how individuals are classified. As the jobs climate changes, people’s perception of it changes, as does their behavior, hence they are reclassified. The number I watch more closely is the employed number as that has a more exacting definition. I personally know several teenagers who went from “not participating” directly to “employed.” They weren’t interested in a job until a friend asked them to apply at the same job the friend already had.

  11. For some reason, the phrase "cooking the books" keeps coming to mind...

  12. For an understanding of unemployment statistics, see Mike Shedlock's analysis.


    FYI, I am a huge fan of Mike's, and he is a must-read economics blog, one of the tops in the world in terms of traffic. He blogs from an Austrian economics point of view, meaning he is not a fan of Obama, Bernanke, Geithner, Krugman, and a host of other clowns.

  13. Wait, I thought our population continues to grow? Don't we continue to have an increasing immigration issue as well? Aren't people being born every day?

    So, how did our workforce decrease by half-million?

  14. There are two surveys - to report unemployment they perform a household survey to contact people and ask them about their employment status, working, not working but not looking (ie retired, disabled, 'discouraged workers' who are not considered in the labor force).

    For jobs created they survey companies, since companies have pretty good record-keeping and one company can report on a large number of jobs, those numbers are considered more accurate month to month. (but of course doesn't tell you how many people are looking, the size of the available labor force etc.)

    hope that helps clear up the mystery.

  15. The new metric - Less bad is the new good.

    Fewer people lost their jobs last month than the previous month. See how quickly we're recovering?

    Once all the jobs are gone, the number of layoffs will reach zero, and our recovery will be complete. At least in the eyes of the Obama administration.

    Looks like "Winning the Future" will be replaced with "Our work here is done."

  16. Yes, the bogus BLS numbers are due to two factors: (1) people dropping out of the labor force; and (2) blatant statistical manipulation.

    Zerohedge covers this extensively every month when the numbers are released. See: