An unpleasant employment surprise

By Felix Salmon
April 6, 2012
that was unpleasant.

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So that was unpleasant: I guess we’ve all just become so used to healthy jobs report that a weak one like this comes as a nasty shock. And it is a bad report: for all that the margin of error is high, and the unemployment rate (which, remember, is basically the one number which matters politically) fell, the Establishment Survey was riddled through with weakness, both in terms of February’s numbers and in terms of revisions to December and January. Even weekly earnings fell.

So there’s bad news here, which is that judging by this one report, some of the steam might have gone out of the recovery. And there’s a little bit of good news too, which is that it’s just one report, not a trend, and that it has a very wide margin of error; that the economy’s still creating jobs, even if it’s not creating them as fast as we had hoped; and that it wasn’t all that long ago that a +120,000 headline figure would have been taken as something decidedly encouraging. So the expectations baseline has moved significantly upwards, and in many ways it’s the expectations baseline, rather than the numbers themselves, which drives investment.

The markets always care a lot about the non-farm payroll figures, but this report will ultimately have almost no effect on either politics or policy. Politics because the Household Survey showed unemployment falling, and policy because it’s actually pretty much what the Federal Reserve expected. As far as the real-world ramifications of this are concerned, they’re small and mainly related to the fact that long-dated Treasury bonds now yield about 0.1% less than they did yesterday. Which is important if you’re a fixed-income trader, and isn’t if you’re not.

So if you’re taking today off, there’s not a whole lot to worry about here. Go off and enjoy your long weekend. But be sure to go back to work next week!

23 comments

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Felix, I don’t disagree with your overall point but surely to invoke “wide margin of error” only when the numbers look bad is a bit cheeky. It’s the same survey so this number has the the same reliability as past numbers. We should be talking about that margin of error every time the report comes out!

Posted by junkcharts | Report as abusive

“I guess we’ve all just become so used to healthy jobs report”

What? What healthy jobs report(s)?

200,000 a month is not healthy in a robust recovery.

Of course, when Bush had 5.5% UE rate and 300K+ jobs a month, the media was despondent and told us what a horrible record that was.

Amazing how much they’ve changed with 8.3% UE rate and 200K jobs created.

Posted by sandrak | Report as abusive

Doesn’t it bother you even a wee bit that the number of jobs added is nearly half of what was expected, but the unemployment rate still dropped? I recall last August, I believe it was, there were ZERO jobs added, yet the unemployment rate didn’t change. Obama is cooking the books. You know it, I know it, anyone with any common sense knows it, especially the guys on Wall Street, which is why the market tanked on this “great” news. You are trying to put lipstick on a pig, but it is still a pig. When will you ever stop covering for this guy?

Posted by BurkeVA | Report as abusive

Surprise? Oh, lord.
http://danielamerman.com/articles/2012/W orkC.html
Quote:
The term “Workforce Participation Rate” sounds so dull that it could put even an economist to sleep. And for most of our lives it has in fact been a remarkably boring statistic, changing only at an excruciatingly slow pace. However, in recent years and months, “labor force participation” has become a mystery worthy of CSI or Sherlock Holmes. Bizarre, inexplicable things are happening quite rapidly within this dry and deeply obscure measure. And, by fascinating coincidence, if these odd reductions in the workforce participation rate were not occurring, then the picture of the economy and employment that is being presented to us – changes radically.
If the workforce participation ratio were to fall by 1%, however, then that would mean 1.5 million people would have left the workforce (keeping in mind the ratio is based on the total 150 million working age population, not the labor force). There are still only 90 million jobs, same as with our 10% unemployment rate above, but because “the workforce” has been reduced, we now subtract 90 million employed from 98.5 million in the workforce, and find there are only 8.5 million unemployed people. And when we divide those 8.5 million into our modified workforce of 98.5 million, unemployment has now risen to only 8.6%.

In other words, revising our workforce participation rate downwards by 1% made 1.5 million jobless people just plain disappear, and dropped the unemployment rate from 10.0% down to 8.6%.

That’s pretty remarkable, but not nearly as remarkable as what happens if we drop the workforce participation ratio down by 2.0%. As can be seen in the next line in the table, that doesn’t change the fact that 2 million fewer people have jobs. But because 3 million jobless people have now been removed from the unemployment calculations, we now have an almost miraculous situation: the unemployment rate doesn’t rise at all, but falls to 7.2%, with only 7 million unemployed out of a labor force of 97 million people.

For a true miracle, however, we need to move the workforce participation ratio down by 3.0%. The removal from the labor force of 4.5 million jobless people completely overwhelms the technicality of there being 2 million fewer jobs, and sends the unemployment rate plunging to 5.8%. Break out the champagne, because as the official unemployment figures now prove: the economy is surging and happy days are here again!

Posted by Foppe | Report as abusive

Mr Obama inherited a basket case economy from his predecessor, made still worse by outsourcing military expenditure, and special treatment for the war “budgets”. Then people who oppose any meaningful use of public money for the public good complain that there isn’t much of a recovery. I hope they don’t drive GM cars.

Posted by jsmason | Report as abusive

Interesting how unemployment has come down. The number of people considered to be in the work force went down. So the number of people looking for jobs actually went down. That doesn’t mean unemployment is lower, it means people are giving up. Quite a bit different.

Posted by Quek | Report as abusive

we’ve been used to a healthy jobs report???? not since Obama has been President. the posts above illustrate that you need to look at the U6 series, still above 15%. discouraged workers have dropped out of the labor market at record rates–new jobs is far from keeping pace even with population growth, much less with actually reducing unemployment. is this Rosy Scenario reporting? or just the usual Help-Barack-Keep-His-Job writing?

Posted by RIGDUM | Report as abusive

Well put, Foppe!

Would be great to have a clearer picture of the decline in workforce participation. That link you posted is a start.

Posted by TFF | Report as abusive

Workforce Participation has long been of interest to me.

Here in wild and wonderful West Virginia we have a wage rate that is very like the average wage rate for the country. Yet, we are one of the poorest states. Why? Low workforce participation.

Welcome to West Virginia, everybody.

Posted by MorgantownJoe | Report as abusive

I’m floored this reporter is stating that past declines of the short term unemployment rate was somehow much improvement at all. The economy did better under Reagan, Bush, Clinton and Bush yet Obama’s performance is now “healthy”? I know, without even a shadow of doubt, that if McCain had won in 2008, then had a jobs report this bad, the hysteria would be whipped to a frenzy by the media and Democrats.
This jobs report is very similar to all the past 12 months in that people are quitting the labor force as never before and that is the main reason for the drop in short term unemployment. In other words, economic growth is paltry, despair is flourishing in the jobs market.

Posted by change60 | Report as abusive

And the number of people who are not looking for work reaches an alltime high.

http://research.stlouisfed.org/fred2/ser ies/LNS15000000

Posted by Beachguy53 | Report as abusive

The Labor Pool is the largest in 50 years. It’s hard to go back but if one takes the number of acailable workers who dropped out last month, it would be 8.4%

That “A job creation” does NOT make.

Posted by ThomasMacso | Report as abusive

You have to wonder if Mr Salmon is drinking Obama Kool-Aide or just not that good at his jobs. He tells us we’ve become so used to good jobs reports? Really, he makes it sound like years intead of a couple of months? Then he says it wasn’t that long ago 120K jobs would have been encouraging? Statement one and statement two were in paragraph one and two, and they don’t exactly add up, but they do tend to mitigate the negative impact of a terrible jobs report, which one suspects was the political intent. Folks do a search on ECRI and Lakshman Achuthan. They are the best at calling recessions and they’ve been saying that we are headed into one, even when everyone else has been calling them crazy. You see we’ve been in a little bubble created by Obama’s massive spending and debt, and the trillions in funny money created by the Federal Reserve to support Obama’s trillions in debt. The bubble is bursting folks and we are headed into recession. Mr Achuthan has said it will be mid to late summer before we really begin to feel it. With this report we may not be so lucky. It was inevitable folks….you can’t buy prosperity with debt and money created out of thin air, only a bubble, although I’m sure Obama is hoping he can keep some air in the bubble until Nov!

Posted by valwayne | Report as abusive

Can we all hear the ice cracking on Obamas thin ice recovery? We are all about to fall in. There is a major recession coming, and Obama will not admit. This is a sign of a not ready for prime time President.

Posted by steelyal | Report as abusive

We are Americans! Let No One Divide Us! Jesus has risen

Posted by steelyal | Report as abusive

Trayvon God Rest His Soul is a victim of our society. We can “ALL” be Americans and persue our dreams. We have left wing entity’s that want to destroy that. We are bigger than that. “WE THE PEOPLE” will prevail.

Posted by steelyal | Report as abusive

If we are indeed headed back into a recession after the artificial bubble of Obamadebt, it will be the perfect political play for the Dems: they’ll screech with unholy glee about how the economy was finally starting to recover until Romney took office, then ‘poof!’

It’s impossible to address and resolve the problems this country faces as long as Democrats remain more focused on destruction than on construction.

Posted by WahWahWah | Report as abusive

The one they is not getting enough attention is the number of people who have stopped looking. The non participation rate is up to 88M now, these are people not counted as part of the unemployed because they are not seeking employment.

Yet they are not working.

The gas prices are also spiking for no reason when north America is awash in gas and oil, new technology has been invented to extract shale gas and oil but drilling is not allowed to proceed, or where there is extraction, pipelines and transportation means are either blocked or kept at high costs. Meanwhile, the push to green energy is adding taxes and penalties to power plants, oil and other carbon based energies.

Some people in Washington think to oil and gas as discretionary, they don’t realize enough that it is also a factor of production, and affects each part of the economy including transportation. And when you keep energy costs high, it will dampen employment.

Posted by KitKatKitKat | Report as abusive

Even though Democrats have controlled Congress and “the nation’s purse strings” since 2006 and the Presidency for four long years, let’s ‘BLAME BUSH’so we don’t have to take ANY responsiblity for our failed polcies.

Posted by TPAINE3 | Report as abusive

If you knew how the official unemployment rate is determined by the United States Labor Department’s Bureau of Labor Statistics (BLS) is determined, you would know that it is very precise and does not have a margin of error like political polls.

Years ago, the federal government politicians (Congress and Executive), tired of high unemployment numbers, changed the definition of the official unemployment rate to only include actual numbers of unemployment beneficiaries as reported by the States. This was ostensibly to cut the cost of BLS surveys and provide higher “accuracy”. People who no longer received unemployment benefits were deemed “no longer in the employment pool” and “no longer looking for work” (a blatant lie, but acceptable to the politcos’ narrative of lazy losers).

Politically this new, lower number was great! However, the BLS still does the surveys and also reports the under-employment rate and points out every week and every month of every year that the REAL unemployment rate is roughly 70% higher than the official rate during good times and at least 100% higher during bad, such as now. Of course, these real numbers are fuzzy based on surveys (with a margin of error), not as precise, although far more accurate relative to the continuing depression (two years or more of less than the three to five percent breakeven – staying even with labor population – growth).

This dichotomy of deliberate abuse of unemployment statistics would be a great story for Catfish with little research required since reading the BLS Web Site is almost sufficient, except that this story has already been done many times and immediately ignored by the financial media.

The “official” employment situation is rosy. The poor have a strong safety net with no holes. The Tenth Percenters are still getting their ten plus percent returns in the Fed-pumped stock market, while the middle class has been decimated with declining real income because of the inflation that the Fed says doesn’t exist since they exclude food and energy as “too volatile” to measure (even though they have running four-week averages including food and energy they don’t widely report), essentially luxury items.

EGBOK! The Fed opaque transparency policy is working!

Posted by ptiffany | Report as abusive

We’re in a five-year depression that is expected to continue for years. Who says this, some conspiracy nuts? Actually, numerous bona fide economists including Nobel Laureatte Paul Krugman, not Wall Street hypsters and shills) have been saying this for years.

A depression has been defined for many decades by economists as less than breakeven growth – three to five percent per year to accommodate growth in the population – for two years or more. Even the ultra-conservative Council of Whatever Economists sets the breakeven growth at 2.75% (without any supporting justification).

Happy hypsters are unwilling to use the D-Word and many real economists are too because of the political backlash that would result in cutting their funding.

Posted by ptiffany | Report as abusive

ptiffany, is our population truly growing at a 3%-5% annual rate?

Posted by TFF | Report as abusive

Bush and Obama did well to prevent financial system collapse but otherwise both follow the failed policies of the nanny state: we shall create jobs by destroying the value of savings and investment, by making the future of currencies, international prices, and public regulations as uncertain as possible, by demonizing the productive, by taxing the successful, by showering money on worthless projects on failing and irrelevant public and quasi public institutions and, incidentally, funneling a little cash towards those who will doubtless be glad to use it to meet their existing obligations. What a way to generate growth.

We may get some anyway, perhaps enough to re-elect Bush-Obama.

Posted by johnwerneken | Report as abusive