Why 8.3% unemployment is baloney

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You probably heard or read about the good news that last month (January), the U.S. unemployment rate “unexpectedly” declined to 8.3%!!! Better still, the Labor Department says that “total non-farm payrolls rose by 243,000 in January”!!!

But wait. Those figures of 8.3% unemployment and 243,000 new jobs are deceptive. Writing in the New York Post, John Crudele explains:

“Those 243,000 jobs are the total after seasonal adjustments. The question you should be asking is, what’s the un-tampered-with number before the adjustment?

Glad you asked. The Labor Department reported a loss of 2,689,000 jobs in January.

Seasonal adjustments are intended to smooth out holiday bumps like that. But because of the depth and unusual nature of the nation’s Great Recession, those seasonal adjustments are being skewed.

Here’s how it works: In January 2010…there was an actual, unadjusted job loss of 2,858,000 jobs.

To make it simple, the government computers were expecting a bigger unadjusted loss than the 2,689,000 jobs because last January’s decline was 2,858,000.

Why weren’t there as many job losses this January? Very likely because the weather throughout the country is a lot milder this year than during the past two Januarys.

A loss of jobs that isn’t as bad as expected turns into a job gain. Does that mean there really are 243,000 new jobs out there? Absolutely not.

Let’s say there are rumors in your company that 300 people are going to be laid off. Instead, management decides to fire just 200.

Two hundred people, of course, have lost their jobs. But, adjusting it for expectations, 100 people didn’t get fired. Using this analogy, the government would say that, on an expectation-adjusted basis, 100 jobs were created.

That’s sort of what happened in the January employment report because of seasonal adjustment.”

Or, to use another analogy:

I go to a casino to play the slot machines. I expected I would lose $100. Instead, I lost “only” $70. So I tell other people that I made $30 from gambling!

Even Federal Reserve Chairman Ben Bernanke recognizes that the 8.3% jobless figures is deceptive.

Craig Torres and Josh Zumbrun report for Bloomberg, Feb. 7, 2012, that appearing before the Senate Budget Committee, Bernanke said the 8.3% understates weakness in the U.S. labor market. He explains:

“It is very important to look not just at the unemployment rate, which reflects only people who are actively seeking work. There are also a lot of people who are either out of the labor force because they don’t think they can find work [or in part- time jobs]. We still have a long way to go before the labor market can be said to be operating normally. Particularly troubling is the unusually high level of long-term unemployment.”

The percentage of the unemployed who have remained without work for 27 weeks or more actually increased in January — from 42.5% in December 2011 to 42.9% in January 2012.

Remember that the next time someone tells you that unemployment has gone down under Obama.

~Eowyn