With the release of today’s jobs report by the bureau of labor statistics, a public controversy has erupted over the veracity of the jobs numbers. Representatives on the extreme right claim the jobs numbers are being ‘cooked’ by the labor department. One of the two jobs reports, the current population survey, reported some 870,000 new jobs were created last month. In contrast, the current establishment survey, the other labor department report, noted only 114,000 jobs were created. The right wing explains this by alleging outright falsification of the jobs report by the labor department. As is the tendency of the extreme right, they are not big on rational analysis. This writer does not buy the idea that outright falsification is the explanation. However, I do think there’s something wrong with the jobs numbers and have repeatedly been saying so on this and other public blogs for more than a year now.
I have been writing consistently about the problems in the jobs reports, pointing out that for the last three years in a row, from 2010 to 2012, we see an interesting trend. Every fall and winter the jobs reports show extraordinary job gains well beyond averages, while every spring-early summer the jobs gains collapse. There is indeed something going on with the jobs numbers, though it’s not falsification.
Last month’s 870,000 CPS (current population survey), which determines the unemployment rate, included nearly 600,000 involuntary part time jobs created. That indicates either one of two things: employers are laying off full time workers and hiring part timers; or hiring part timers instead of full timers because they, employers, do not see sustained economic recovery on the horizon and they are hiring more easily laid off in the future part time workers. The problem with part time hires is that the jobs reports considers them – for purposes of determining the standard U-3 unemployment rate – as full time workers. They may be working part time in fact but are considered fully employed when calculating unemployment rates. Hiring that many part timers, or even several hundred thousand less, represents a continuing very weak labor market and not an improving one. This view is supported by the more stable second labor department jobs survey, the establishment report, made up of 400,000 employers reporting each month (and thus not a real ‘survey’ in fact), which showed last month a continuing bare growth in jobs. In fact, 114,000 jobs growth is still well below what it takes to even absorb new entrants into the work force.
However there may be an even more accurate explanation for why the 873,000 number is a gross aberration (but not falsification) in the jobs numbers. I’ve been warning about this for some months now. It has something to do with the repeated exceptional jobs gains coming every year the last three years in the fall-winter period, followed by a repeated collapse in the jobs numbers in spring-early summer also for the past three years. The explanation goes something like the following (bear with me, it’s a bit wonkish):
The current population survey (the 873,000) represents a statistical operation on raw jobs data that adjusts that raw (i.e. actual) jobs data by means of several statistical operations–i.e. seasonality, etc.—to get to the 873,000. But before the raw data is statistically adjusted, another source of raw data is added to the initial data and only after that is the statistical adjustment carried out. This second source is jobs data estimated from assumptions about New Business Formation that are lagged up to nine months.
Here’s how it works. The labor department assumes net new businesses are formed nine months previous. That would be last November-December 2011. These data on new business formation are very inexact. It’s not actual new businesses but an assumed historical average of new businesses. So the past years in which new business formation was high is substituted for the more recent period when new business formation is in fact low, or even negative. It’s really a shaky estimation process.
However, that shaky estimation, up to nine months old, ends up as additional new jobs created data that is then added to the raw data for new jobs created collected last month from the population survey. The assumed jobs created from new businesses created nine months ago and the raw data for new jobs from last month’s survey are then added together. Only then are the statistical adjustments made on that combined raw data to come up with the reported number of 870,000. That all sounds a bit technical, and it is. But some economists are highly critical of this process of adding raw data from historically averaged, assumed new business formation nine months ago to raw data from the survey, and then adjusting it and rolling it up into the publicly reported numbers. This writer is one of many skeptics of the methodology.
(For a further clarification of this, readers should read my various reports on the jobs numbers in 2011 and early 2012 on my blog’s archive (jackrasmus.com) and other public blogs.)
So there is definitely something wrong with the numbers on jobs. I don’t mean only last month’s jobs report. When there is so much divergence between the two jobs reports (870,000 vs. 100,000) something clearly is amiss. But more importantly, evidence of something out of the ordinary happening is reflected in the three years running of inordinate jobs growth in fall-winter followed by jobs collapse in spring-early summer. One year such extreme aberration can be disregarded. But three years in a row now is another thing. Something is wrong.
But this is not the same as saying the numbers are being ‘cooked’. The irrational right wing should do its homework instead of relying on emotional outbursts to explain the obvious anomaly in the jobs numbers. Likewise, the liberal-Democratic Party center should stop trying to apologize for the obvious terrible jobs creation record of Obama for the past three years – notwithstanding last month’s extreme divergence in the two jobs reports – and stop trying to paint a picture that the labor market is now rapidly mending, which it definitely is not. There are still 23 million jobless. That means after trillions of dollars in tax cuts to investors and businesses since 2009, and trillions more in subsidies and government spending, plus more than $10 trillion pumped into the banks by the Federal Reserve — we got barely two million net jobs created since June 2009. That’s a costly, and horrible, jobs creation record. Period.
In the recent presidential debate last Wednesday it was abundantly clear neither candidate has anything remotely representing a jobs program, besides just giving more tax cuts for businesses (that just get hoarded and not invested) and lying about how more free trade (with the Transpacific Partnership free trade proposal) will create jobs instead of destroying them. But that’s in a nutshell the same program for jobs creation being offered by both candidates.
Dr. Jack Rasmus is the author of the book, “Obama’s Economy: Recovery for the Few”, April 2012. His blog is jackrasmus.com and website: www.kyklosproductions.com. He is the host of the radio show, ALTERNATIVE VISIONS, on the progressive radio network, PRN.FM, in New York, every Wednesday at 2pm.