Monday, February 6, 2012

A Diversion?

In the last segment of The Lord of the Rings trilogy, during the final battle scene, Legolas, Elf of few words astutely assesses the opponent's strategy by declaring: "It's a diversion."

Frankly, the jobs numbers that fueled Friday's stock market euphoric surge feels a bit like a diversion to me.

First, when wrestling with the is the employment picture improving question it is imperative to consider that the numbers are seasonally adjusted. January is a notoriously awful month for jobs. According to Gene Epstein, in a recent Barron's article: "Over the past 20 years, January has never witnessed a decline of less than two million payroll jobs even in boom times...the unemployment rate always rises in January..." a fact for the last 64 years data has been available.

This January the loss of jobs actually came in at 2.7 million which is an improvement over recent years' losses. This difference--a decline in the number of jobs lost--resulted in the recorded improvement of "a rise in jobs by 243,000." To put it in the language of the real world: The jobs numbers reflect a slowing of jobs lost by 243,000 jobs over previous January periods rather than a growth in new jobs. For those of us who live in the reality an increase in jobs means there are more jobs not--as the calculation provides--a decrease in the loss of jobs.

Many of us play this game when we make a purchase we shouldn't have. "I saved $100!" we triumphantly declare. The remaining part of the transaction goes unmentioned. To save the $100 we had to spend $1,000. The savings is a phantom savings much as the rise in jobs reported Friday are phantom jobs.

That said, a slowing in decline is good news provided it holds up beyond seasonally adjusted January. But it is important to understand--as most media commentators don't--what the numbers actually mean before we begin the euphoric celebration.

Finally, the reporting of the jobs number which reflects the reality of the lives of tens of millions of Americans has risen to a distasteful level of political rhetoric. These are real people out of work. People who want to work and provide for their own families. The message should be clear. People are still hurting and a decline in the loss of jobs does nothing to help those who are without one. As mentioned in earlier blogs, the work force has declined from 66.1% at the end of 2007 to 63.9% at the end of 2011. When those people drop out of the work force, they cease being counted, understating real unemployment. That is why it is important to consider U-6, the employment number which counts those working part-time who are seeking full-time work and those who have simply stopped trying. That number weighs in at 15.6%.

Hardly a cause for celebration.

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