Friday, October 5, 2012

Obama Finally Makes Good on a Promise

Only takes 44 Months to get Unemployment Below Where He Said it Would Never Get.

So the BLS says that we added 114K Jobs last month, with a slight uptick in labor participation (0.1% WooHoo!) but, somehow, U3 unemployment dropped .3%.  A lot of people are crying foul on this, but few are explaining why.  Now, I'm a complete layman on this kind of thing- I can tell you what my gut says, and I can kind of back it up, but that's about it.  That said, I'm going to do my best, because seems inexplicable, and it needs explicating.

So, here are the facts as we know them: Somehow July and August added more than 40K MORE jobs than previously thought.  When you can miss the real number by nearly 50%, you'll excuse me if I say you're just making stuff up.  But let's assume they're not just making it up.  Let's assume those jobs were legitimately missed, and actually exist.  So... then what?  When Labor Participation goes up, so does unemployment.  So why did it go down so far (and .3% is actually a pretty good drop, month over month)?

Remember, the (very rough) calculation for unemployment rate is (L - E)/L where L is the number of people in the labor force and E is the number of employed people.  It's not exactly that, but it's pretty close.  So when we have 1,000,000 (it's an easy number to work with) in the Labor force, and 990,000 people working, we would have an unemployment rate of (1,000,000 - 990,00) / 1,000,000 or (10,000)/1,000,000 which comes out to 1%.  Now, let's say we added 1,140 jobs, but the labor force increased by .1%.  Plugging those numbers in we'd get: (1,001,000 - 991,140) / 1,001,000 or 9860 / .98% (virtually 1%). 

Notice something, here: we added MORE jobs than we added into the Labor Force, but the UE number barely moved.  Now, many people say we need 150,000 jobs (in our real economy) just to keep up with population growth.  I've also heard 250,000, but let's be generous and use the lower number.  114,000 jobs misses that by 36,000.  So... let's do something similar with our numbers.

Let's say (using our base-line 1,000,000) that our Labor Force jumped up to 1,010,000 (that's a 1% increase in labor force).  Plugging the otherwise same number gets us 1.8%.  That's a huge difference.

Now, with as with all formulae, it's the numbers that make the determination.  Here's the problem, the way the numbers are determined is... opaque.  The numbers are so heavily "massaged" that they simply cannot be trusted, except as a general measure.  I think the magic number is that "Labor force" number, though.

See, the BLS doesn't actually use the "Labor Force."  If they did that, UE would be somewhere between 17 and 20%.  They use Labor Participation.  That means some people- who still don't have jobs and would like one- are, for various reasons simply not counted.  In fact, Labor Participation is still at near record lows.

Now, go back and look at all of that.  It's dense.  It's obscure.  It's positively arcane.  How many people are going to listen to that explanation?  Not many.  Which is why it is so important to get the information out there anyway.

In short, this number looks viscerally good, but still objectively bad for Barack Obama.  He's below that magic "8%" number.  But remember, Barack Obama promised we wouldn't see 8% unemployment.  If we passed his stimulus (which we did) he promised Unemployment would peak out at around this number.  Nearly 40 months ago. 

Barack Obama and his allies are going to spin this as good, and it won't be hard for them to do.  But any serious contemplation of these numbers is still very, very bad.

Update: The inestimable John Hayward (aka Doc Zero) weighs in.

1 comment:

  1. Nice analysis, Allen. Are you trying to join the #mathwitch club?