THE APRIL JOBS REPORT: NEARLY A MILLION MOVE TO THE
SIDELINES – Outside of the Labor Force; while Employment expands by 288,000 and the Unemployment drops to the lowest level in five and a half years...WHAT IS WRONG
WITH THIS PICTURE?
We keep hearing that the worst is over and a real recovery
and meaningful economic growth is now underway, but as my old friend, O Oh Owe,
the Sage of Syracuse would often say, BALONEY. It is all smoke and mirrors as the most
recent labor report shows. Any apparent
improvement is due to masses of able-bodied civilians moving out of the labor
force and moving to the sidelines due to the weak labor market. In this and the
next few newsletters we will analyze this very disturbing situation facing the
April Sees 288,000 Jump; Earlier Estimates Raised;
Participation Rate, Wages a Worry
By Josh Mitchell
Updated May 2, 2014 7:12 p.m. ET “U.S.
employers in April added jobs at one of the fastest paces of the recovery,
rekindling hopes for an upturn strong enough to alleviate the economy's
employment grew by 288,000 in April and the jobless rate sank to 6.3%, the
Labor Department said Friday. The new jobs—spread across an array of industries
from retail to construction—put total payrolls closer to the all-time peak,
reached near the recession’s start, after a long and grinding recovery.”
This seemingly good news was derived from two employment
surveys published by the US Department of Labor’s Bureau of Labor Statistics.
The cited employment growth of 288,000 was based on data
from the CES or Current Employment Statistics (also referred to as the
Establishment or Payroll Survey). The
falling unemployment rate of 6.3% (more specifically, the U3 Unemployment Rate)
was derived from data collected in the CPS or Current Population Survey (known
also as the Household Survey).
no doubt that on the surface the two metrics might appear to signal an
all’s-well from the labor markets.
First, the Payroll Survey’s Employment growth since the end of 2008 was
3,478,000 total, or 54,344 per month over the previous 64 months. While that might appear respectable, keep in
mind that the population (Civilian National Population: 16 years and older not in the military, in prison, or
otherwise institutionalized) grew by 12,700,000 or 198,437 per
month over the same period.
between the Employed in the Payroll Survey and the population (CNP) was 4,276,000:12,700,000
for the change (marginal) from January 2009-April 2014, or 33.7%. Measurement of the Employment-Population
Ratio falls under the category of the Household Survey where the marginal gains
from January 2009 and April 2014 came in at 3,517,000:12,700,000, or 27.7% - a
bit lower than the Payroll derived measurement (much less than the average
62.7% Employment Population Ratio from 2004 through 2008).
The following discussion has to do with various data from
the Household Survey:
1) Population refers to the Civilian Noninstitutional
Population (CNP) which includes all people 16 years of age and older who are
not in the military, prison, or other institutions.
2) The Labor Force is equal to those employed plus those unemployed actively
3) The Labor Force Participation Rate or LFPR, is the Labor
Force divided by the Civilian Noninstitutional Population.
4) Employment measured in this survey differs (as noted previously) from that
measured in the Payroll Survey. The Population refers to the Civilian
5) The Employment-Population Ratio is the relationship
between those Employed and the Civilian Noninstitutional Population. This ratio is on the radar of Federal Open
Market Committee or FOMC in their policy making deliberations about every six
weeks as it seems to be a significant factor in determining when the FED will
decide to act on raising the targeted Federal Funds Rate.
6) As the phrase implies, the ‘Not in the Labor Force’
measures the difference between the Labor Force and the Civilian
Noninstitutional Population. This group
includes (among others) retirees and those who have given up seeking employment
The Employment-Population Ratio in January 2009 was 60.6%
and that same ratio was 58.9% in April 2014; it was that falling ratio that
brought us the 27.7% marginal ratio. By
merely measuring the Employment-Ratio using the 60.6% from January 2009 we can
see the following:
Employed = 142,152,000
Population = 234,739,000
Employment Population Ratio = 60.6% (keeping in mind that
the ratio averaged 62.7% over the previous 5 years)
Employed = 145,669,000
Population = 247,439,000
Employment Population Ratio = 58.9%
simply using the Employment-Population Ratio from January 2009 for April 2014
the employment shortfall can be measured.
Employed = 149,843,000
Population = 247,439,000
Employment Population Ratio from January 2009 = 60.6%
Employment shortfall from January 2009 – April 2014 was:
149,843,000 (adjusted for 60.6% Employment-Population
Ratio) less the actual 145,669,000 (actual Employment-Population Ratio of
58.9%), or 4,174,000
In summary, if the Employment-Population Ratio had
registered 60.6% in April 2014, the marginal change in ‘Employment’ from
January 2009 – April 2014 would have been 4,174,000 higher than the actual
3,517,000, or 7,691,000 total.
The Labor Force Participation Rate (LFPR) [Labor Force
(Employed + Unemployed actively seeking employment) / Population] in January
2009 was 65.7% and that same ratio was 62.8% in April 2014; again, it was that
falling ratio that brought us the 9.5% marginal ratio. By merely measuring the Labor Force
Participation Rate (LFPR) using the 65.7% from January 2009 we can see the
Employed = 142,152,000 + Unemployed = 12,058,000
Labor Force = 154,210,000 Population = 234,739,000
Labor Force Participation Rate (LFPR) = 65.7% (keeping in
mind that the ratio averaged 66% over the previous 5 years)
Employed = 145,669,000 + Unemployed = 9,753,000 Labor Force = 155,421,000 Population = 247,439,000
Labor Force Participation Rate (LFPR) = 62.8%
simply using the Labor Force Participation Rate (LFPR) of 65.7% and
Unemployment Rate of 7.8% from January 2009…
Employed = 149,843,000 + Unemployed = 12,710,000 (based on
an Unemployment Rate of 7.8% from Apr 2014)
Labor Force = 162,553,000 Population = 247,439,000
Labor Force Participation Rate (LFPR) = 65.7%
Labor Force shortfall from January 2009 – April 2014 was:
162,553,000 (adjusted for 65.7% Labor Force Participation
Rate) less the actual 155,421,000 (actual Labor Force Participation Rate of 62.8%),
summary, if the Labor Force Participation Rate had registered 65.7% in April
2014, the marginal change in the ‘Labor Force’ from January 2009 – April 2014
would have been 7,132,000 higher than the actual 1,211,000, or 8,343,000
So now we’re back to the month of April 2014. We’ve seen that the Payroll Survey Employment
for the month was a very respectable 288,000.
If we look at the Household Survey Employment figure the Bureau of Labor
Statistics reported that Employed actually fell by 73,000. How can this be?
We’ve discussed the differences in the Current Employment
Statistics (CES) or Payroll Survey and the Current Population Survey (CPS) or
Household Survey on numerous occasions, but suffice to say that the while the
sample size for the Payroll Survey is much larger, the population or size of
the Household Survey includes those covered by the Payroll Survey plus some
self-employed persons, small business employees, farm workers, etc. The population covered by the Household
Survey was 5.1% more than the Payroll Survey in April 2014, but it had averaged
5.8% from January 2009 through April 2014.
This shrinking gap between employment in the Household Survey and the
Payroll Survey might help explain a trend toward more jobs moving to the
Payroll Survey portion of the overall employment pie.
“Coverage. The household
survey definition of employment comprises wage and salary workers (including
domestics and other private household workers), self-employed persons, and
unpaid workers who worked 15 hours or more during the reference week in
family-operated enterprises. Employment in both agricultural and nonagricultural
industries is included. The establishment survey covers only wage and salary
employees on the payrolls of nonfarm establishments.”
will move on to the issue of the unemployed and the Household Survey for the
month of April. In the monthly Household
Employment Picture, we see that the U-3 Unemployment Rate dropped from 6.7% to
6.3%. In scratching beneath the surface,
we have to look at how the unemployment rate is derived. When we look at Labor Force, we find it is
composed of the EMPLOYED and the UNEMPLOYED (those not employed who are
actively seeking employment). The AHA!moment comes when
we see that the Labor Force dropped by an amazing 806,000, a change we have not
seen, aside from last October, in more than 30 years.
Every month in the Employment Situation Report, issued by
the US Department of Labor, Bureau of Labor Statistics, you’ll find the
‘Household Data’ Summary Table A around the fourth or fifth page of the
summary page points to a variety of data, including the monthly changes in
various categories from the Household Survey.
As was noted earlier, the U-3 Unemployment Rate fell from 6.7% in March,
to 6.3 % in April. In the media, that
number was pretty much heralded as good news.
The problem with that was that the unemployment rate fell because the
Labor Force contracted so much, that is to say that while Unemployment fell by
733,000, Employment (remember, this is the Household Survey) also dropped by
in mind that the U-3 Unemployment Rate is equal to Unemployed divided by the
Labor Force (the Labor Force is equal to the employed plus those not employed
but actively seeking employment). Since
both the Unemployed and the Employed fell, then those people left the Labor
Force entirely on a net basis.
Typically, when we see unemployment falling during a recovery, what we
would experience in the Labor Force is shift to the employed.
Two phenomena to keep in mind…
Worker Effect: when we see the Unemployment Rate fall as a
result of those in the Labor Force who have given up on finding employment and stopped
Effect: when we see the Unemployment Rate rise
as a result of those re-entering the Labor Force, encouraged by the prospect of
an increasing demand for labor.
It’s clear that we are seeing what appears to be the
‘discouraged worker effect’ phenomenon continuing to maintain its grip. The hard thing to swallow is that we have
been celebrating an ongoing trend where we’ve witnessed a falling unemployment
rate coupled with an anemic labor force…meaning that those formerly unemployed
are giving up and moving out the labor force entirely.
On a further note, since the population (Civilian
Noninstitutional Population – 16 years and older not in the military, in
prison, or otherwise institutionalized) expanded by 181,000, and the Labor
Force did not absorb them (this is on a net basis) so as a result, the ‘not in
the Labor Force’ component of that population expanded by 988,000. The ‘not in the Labor Force’ has been growing
at a very rapid rate for some time. We’ve
focused for the last several years on the fall-off in the Labor Force Participation
Rate (LFPR) which went from 65.7% in January 2009 to 62,8% in April 2014 (note:
LFPR went from 63.2% in March 2014 to 62.8% in April 2014). The marginal change
from January 2009 through April 2014 was an LFPR 9.5%...for every 100 16+ year
olds (Civilian Noninstitutional) added to the population, only 9.5 were added
to the labor force (Employed and Unemployed).
not published by the Bureau of Labor Statistics, the ‘not in the Labor Force’
Population Ratio, or the flip side of the LFPR has been growing, again, at a
very rapid rate. From January 2009
through April 2014 the population expanded by 12.7 million. The two main sub
groups comprising the population (Civilian Noninstitutional Population, or CNP)
are the Labor Force (those employed and those unemployed actively seeking
employment) and the ‘not in the Labor Force’ component, which include retirees
and those who have given up on finding employment. The marginal Labor Force Participation Rate
LFPR for January 2009 through April 2014 was 9.5% (1.2 million divided by 12.7
million), while the ‘not in the Labor Force’ Population Ratio was 90.5% (11.5
million divided by 12.7 million) over that same period.
some in the media seems to either ignore the problems associated with the
expanding ‘not in the Labor Force’ segment or shrinking Labor Force
Participation Rate, attributing it to retirements in the baby boom population
cohort (those born from 1946 through 1964), the reality is that it goes well
beyond that: younger workers, in the prime of their earning years have been
unemployed or have simply given up on ever finding employment and older workers
are remaining in the workforce in droves – simply unable or unwilling to retire
at ages that were previously the norm for prior generations.
In an upcoming issue, we’ll dig into the detail behind
those various population age groups. This should shed some light on the labor
markets across those age groups.