Archive for unemployment

Does a Republican Congress Create More Jobs?

UPDATE: I discuss this chart in detail in my new posts, “How To Make Numbers Say Anything You Want” Part 1 and Part 2

For your consideration.

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Data gathered from the US Bureau of Labor Statistics. Employment numbers are averaged by quarter and charted from 2003 to the present. (2010 Q1 is just January, 2010) Republicans took control of both houses of Congress in January 2003. Democrats took control of both houses of Congress in January 2007.

I’ve more to say, but it can wait till later.

President Obama, I Fixed Your Chart For You

You may have recently seen the new chart put out by the Obama administration pushing the idea that the President’s policies are responsible for the decrease in newly unemployed. It looks something exactly like this:

Now… as a piece of visual political propaganda, this is brilliant. The colors draw sharp contrast, the symmetry is appealing. And the numbers are right.

But keep in mind how carefully I phrased the units being used “decrease in newly unemployed”. This isn’t an increase in jobs or a decrease in unemployment. It just means that we’re losing jobs slower that we were before.

Make no mistake… this is good news. And we can bicker back and forth as to whether President Obama’s policies are responsible for this slowdown in newly lost jobs. He would say yes and point to the stimulus.

But in order to point effectively to the stimulus, we would have to take a look at the expectations of the stimulus. Everyone expected that we would come out of the recession eventually and that job loss would slow. The question was how quickly that would happen.

To help us visualize the expectations of the stimulus against the reality of it, I’ve added that piece of context to the graph. See if you can spot it.

I got these numbers by multiplying the labor force by the expected unemployment rate with the stimulus (per this chart) and then subtracting that number from the labor force times the actual unemployment rate.

One may say that this is unfair. I would actually kind of agree. Economic predictions are pretty hard to make. But the original chart is similarly unfair. Keep in mind that it took a few months to get the stimulus money out the door. In fact, they didn’t even release any data on the stimulus funds for second quarter 2009 (the first stimulus report was for third quarter 2009).

Side Note: This data has actually been scrubbed from the website. They’ve re-compiled the data into new categories. But I’m wary about trusting the data since it looks like, according to the official data, about $12 billion of the stimulus was spent before the stimulus was signed with projects being approved as early as 2000.

So the first several months of decline don’t even reflect the impact of the stimulus. The decline in new job losses seems to be just a happy coincidence that looks good on a chart.

January Employment Numbers or How To Lose 1.1 Million Jobs But Keep The Unemployment Rate The Same

It’s that time again! First Friday of the month and job numbers for the previous month are released.

This month’s unemployment rate is (drumroll please…)

9.7%!

That’s a 0.3% decline in unemployment. But, if you’ve been reading this blog long enough you know that we can’t just let that go without caveats.

The Good Stuff

Good news is a matter of context. This news isn’t so much good in the sense that the economy is super awesome so much as it is good in the sense that it isn’t actively bad. But I’ll take “not actively bad” for now.

  • My big “thing” for the last half-year is that the nature of the unemployment rate calculation is hiding a huge story, which is the disappearance of the labor force. This latest report has the labor force increasing for the first time since August.
  • Actual employment increased a little over half a million (although comparing January to December is difficult because the population controls are altered at the beginning of every year). This is the biggest increase in approximately forever (since 2007).
  • The people who want a job but aren’t looking for one declined about 350,000.

The Bad Stuff

The good news on the job numbers is basically that they don’t suck. The bad news is that they really only look good when compared to December. Compare them to further back and they still look like of questionable.

For example, the last time we had 9.7% unemployment (back in August), we had 1394 million jobs. In January, we had the same unemployment rate, but only 138.3 million jobs. In 5 months, the unemployment rate is the same, but we’ve lost 1.1 million jobs. Mathematically stated:

August, 2009:
15.0 million people looking for jobs
divided by
154.43 million people employed or looking for jobs
equals
9.7% unemployment (139.4 million actual jobs)

January, 2010:
14.8 million people looking for jobs
divided by
153.17 million people employed or looking for jobs
equals
9.7% unemployment (138.3 million actual jobs)

Welcome to the world of job statistics. Basically, the unemployment rate is a measurement of people with jobs vs. people who are looking for jobs. If people stop looking for jobs for whatever reason, they move out of the “unemployed” category and even though a new job has not been created, the unemployment rate has gone down. Incidentally, I have a video on this phenomena that I made back in October (aired in November).

The Weird Stuff

You may have seen a headline along the line of “Payrolls Decline 20K as Unemployment Rate Falls to 9.7%” and said, “What the…?” This is basically the messy nature of statistics poking its ugly head up through the facade of mathematical certainty.

More simply stated: These numbers are estimates based on a set of surveys. The surveys are gigantic (tens of thousands of respondents) and employ certain controls to try to give a more accurate picture of what is going on. But there are two different surveys: one for household data and one for establishment data. Usually they show a similar picture. Right now they are showing a different one. The household survey says we have more jobs than last month while the establishment survey says we have fewer.

These numbers are not now, nor have they ever been, exact. But they’re good enough for government work (get it!).

My Dance Of Humility Before Robert Stacy McCain

Back at the beginning of September, Robert Stacy McCain stated that:

The FHA is on the hook for lots of “underwater” loans, taken out by low-income homeowners who got special low down-payment deals and — in case you didn’t notice — unemployment hit a 26-year high in August, with no prospect the 9.7% jobless rate will go down any time this year.

At the time, I wrote a post stating:

If unemployment dips below 9.7% by the end of the year, I will make a point that your enormous confidence in the suckiness of the economy was misplaced.

If it does not, I will write a humble post begging your forgiveness. I’m curious to see how this goes.

Therefore, I take note that Stacy McCain predicted the trajectory of the economy more accurately than I would have. I humbly beg his forgiveness.

I would like to take a moment, though, and explain why I wrote that post in the first place.

I am fascinated by neurology… particularly how the brain forms memories and how those memories interact with reality. The evidence that pretty much everyone has false memories (where we can vividly remember things that didn’t happen) is overwhelming. What I’ve found in the last 10 years of following politics is that this area is particularly vulnerable to people saying things about the past that they totally believe are true but are, in fact, based on a narrative that was established after the fact.

People look back in hindsight and say “Well, of course John Kerry was a terrible candidate.” But they’re only saying that because he lost. If he had won, the narrative would have been established that he was the right guy at the right time who ran a campaign of brilliance with these subtle nuances that connected with the people. We have this certain sense of fate through which we look as if the world we live in was one of inevitability and we realign our perspectives and (frighteningly) our memories to align with reality as it turned out.

That’s why I love the internet and blogs in general. I love to take the feeling understanding of a certain time and place and write it in stone. Looking back at September now, it seems obvious that we weren’t out of the woods at the time. But it didn’t seem obvious to me or to a large chunk of those writing about the economy.

That the unemployment situation was still on the downturn seemed obvious to Stacy McCain and at the time I was struck by how different our expectations were. Some people will look back at his post and say “Well, of course the unemployment rate wasn’t going to decrease. Everyone knew that.” This post is to point out that not everyone knew that and that it wasn’t an obvious thing. We shouldn’t discount those who are right about something because the narrative has made their very gutsy prediction seem obvious.

It’s worth keeping record of our reactions at the time and comparing them to how the world turned out. It’s worth pointing out when someone is able to make an accurate prediction. And Stacy McCain had me on this one.

Blatant Self-Promotion

Someone had suggested that I shared this on this blog so, even though it’s over 2 months old, I’m posting it. It’s apt, seeing as how job numbers came out today.

Dirty Stimulus Jobs Data Exaggerates Stimulus Impact

One of the key talking points for the stimulus that was passed earlier this year was that it would “save or create” jobs. Lots of jobs. Oodles of jobs. Jobs piled so high, we’ll have to hire people to dig us out of all the jobs we will have.

Or, more specifically, the Obama administration stated that they would “save or create” 4 million jobs.

This led to a great deal of mockery over the “save or create” turn of phrase, but the administration set out to actually measure the number of jobs that were saved or created by having recipients of the stimulus funds fill out a form in which they indicate how many jobs that particular chunk of the stimulus created (that form can be found here).

Now, if you look at recovery.gov, you’ll see that the stimulus has “saved or created” 640,000 jobs. That is only 16% of the promised jobs, but it’s still a pretty big number. I was curious how they got it, so I downloaded the raw data and started sifting through it. This is what I found:

  • Over 6,500 of all the “created or saved” jobs are cost-of-living adjustments (COLA), which is really just a raise of about 2% for 6,500 people. That’s not a job saved, no matter how you calculate it.
  • Over 6,000 of the jobs are federal work study jobs, which are part time jobs for needy students. As such, they’re not really “jobs” in the sense that most other federal agencies report job statistics (We don’t count full time college students as “unemployed” in the statistics.)
  • About half of the jobs (over 300,000) fall under the “State Fiscal Stabilization Fund”, which can be described like so: Your state (perhaps it rhymes with Balicornia) can’t afford all the programs it has running, but when the state government tries to raise taxes, people yell and scream and threaten to move. The federal government comes in with stimulus funds and subsidizes the state programs. Consider this a “reach-around” tax in which the state can’t raise taxes its citizens any more, but the federal government can. So the federal government just gives the state the money to keep running programs they can’t afford on their own.
  • There are, scattered hither and non, contracts and grants that state in no unclear language that “This project has no jobs created or retained” but lists dozens, if not hundreds, of jobs that have been “saved or created” by the project. It makes no sense whatsoever.

Finally, there is a statistical problem to the data here that I’ve not heard discussed at all, the problem of job duration.

Because there is no guidance in the forms on the proper way to measure “a job”, recipients are left to themselves to figure out what counts as a job. Some of them fill it out by calculating “man-weeks” and assume one “job-year” to be the measurement of a single job. Others fulfill contracts that only require two weeks, but they count every person they hire for every job to be a separate job created.

As an illustration: Let’s say you have a highway construction project in the Salt Lake City area that takes one month. A foreman is hired for the project and he brings on 20 guys he likes to work with to fill out his crew. That is 21 jobs “saved or created”. While that job is being completed, the funding if being secured for another highway construction project. By the time that funding goes through, the first project is done and they decide to just move the whole crew over to the next project. That is another 21 jobs “saved or created”.

If this happens four more times, on paper it looks like 124 jobs have been “saved or created” when in reality 21 people have been fully employed for six months. But if you judge jobs through a “man-weeks”/”job-years” lens, you have 10.5 jobs.

This is how the Blooming Grove Housing Authority in San Antonio, Texas can run a project titled “Stemules Grant” to create 450 roofing jobs for only $42 per job. My educated guess is that they hired day-laborers, paid them minimum wage or below and only worked them for a single day. Each new day brought new workers which meant more jobs “created”. Either that or they simply lied on the form. (UPDATE: USA Today interviewed the owner here. He says that he used only 5 people on the roofing jobs but that a federal official told him that his original number wasn’t right, so he adjusted it to count the number of hours worked, not the numbers of jobs created.)

Rational people can see that this kind of behavior skews the data upward. How much upward? It’s hard to say, although it is a safe bet that any project that manages to create a job for less than $20,000 is probably telling you some kind of fib.

My ultimate conclusion from looking at the jobs data is that:

  • The jobs numbers reported on recovery.gov are heavily exaggerated
  • The jobs numbers reported are not subjected to any scrutiny or auditing whatsoever; they are a simple data dump and therefore be seen with heavy skepticism
  • The jobs numbers are a laudable transparency effort. I’m impressed that so much work has gone into trying to measure the results of the stimulus funding. Normally, these kinds of numbers would be shrouded in mystery and a normal Joe like myself would be unable to investigate them. Kudos to the Obama administration for implementing this data gathering and display initiative. However, they put too much faith in the data and statements like “The stimulus has saved or created 640,000 jobs” are uttered with a profound ignorance in the nitty-gritty details of what the data actually says.

For more interesting stimulus jobs data, you can see Paul Krugman getting angry about it here and Greg Mankiw responding to that anger here and Brad DeLong calling Allan Meltzer a shameless partisan hack about the topic over here and a story of how $900 worth of boots became 9 jobs over here. Or you can just download the jobs data and look through it yourself. There’s lots of interesting stories in there.

What The September Unemployment Rate Tells Us (Or, How I Learned To Start Worrying and Hate the BLS Data)

Latest unemployment data has come out and the people who were claiming “ah, but job losses are slowing” were smacked down and sent to the corner to think about what they’ve done.

The unemployment rate was up .1%, from 9.7% to 9.8%. That’s not so bad, right?

To speak frankly, the unemployment rate tells so little of the story at this point that it’s hardly a useful metric. If you’re looking for a useful metric, start looking at the raw unemployment numbers.

The problem with the unemployment rate is that it doesn’t compare the employed with the unemployed. Instead, it compares people who are employed with those who don’t have jobs, but have looked for a job in the last 4 weeks”. This make a certain kind of sense; we don’t want to count stay-at-home dads or retired individuals as unemployed.

However, this means that an exodus from the workforce could mask the severity of the job situation. To illustrate, I’ve created a visual:

20peopleEmployed

Let’s say we have 20 people in the workforce and 2 of them fit the technical definition for unemployed, which means that they’re actively looking for work. That gives us an unemployment rate of 10%.

20pepopleWithX

Now, let’s say one of the unemployed people got tired of being unemployed and decided to go back to school. She has now removed herself from the labor force, so we don’t count her when we count unemployed people. Let’s also say that one of the employed people lost his job and instead of looking for a new one, he decided to simply retire.

18peopleEmployed

As you can see we haven’t added any jobs… in fact we have fewer jobs than we did before. But we took a higher percentage of people out of the “unemployed” group than we did out of the “employed” group. It’s now 1 person unemployed and 17 people employed. We’ve “slashed” the unemployment rate to 5.5%.

This current job report is actually a perfect example of this. We lost 785,000 jobs this past month. That makes it the biggest month of job losses since March. But the number of people in the unemployed group rose only 214,000. This is because  we saw over twice that number simply leave the work force altogether.

If we took employment numbers for this month compared it to the labor force for last month, we would have an unemployment rate of 10.2%… almost a half a percent higher than the one we have!

I try to be an optimist, but it is hard to see this report as anything but a disaster. Furthermore, we are so far into the implementation of the stimulus, that I have a hard time seeing it as anything but a huge failure. I understand that only about 10% of the stimulus has actually been spent, but part of the point of the stimulus was to get money out into the economy in order to inject a little cash flow into the situation. That means that a huge part of the success of the stimulus relied on getting the money out in a timely manner.

I know that defenders of stimulus theory would object that it takes time to spend $800 billion and that you can’t spend that much very quickly without massive fraud. To which I reply: “Well, duh.” I think that’s a great argument against the stimulus and I wish they had brought that up back in February and March instead of bashing people like me for bringing that up back in February and March.

Back to the point, we have seen job growth in only one month out of the last 17. We need to stop focusing on the unemployment rate and start looking at raw jobs data. Only when we see the raw number of jobs start rising consistently can we be confident of economic recovery.

Note: To be fair, jobs tend to be a lagging indicator, but outside the stock market increases, I’m seeing little reason to be optimistic. And, quite honestly, the stock market seems to be very excited about absolutely nothing. It’s like they’re throwing a champagne party because the world hasn’t ended, neglecting the fact that it is still on fire.

I've Got My Eye On You, Robert Stacy McCain

Robert Stacy McCain (who is totally hilarious, even if you vehemently disagree with him) has a post on an FHA bailout he believes is heading our way. I have no opinion on the matter one way or another because I haven’t really looked into it and I try to have some idea of what is going on before I open my big mouth.

(Although I occasionally fail at even that simple task.)

But one of McCain’s statements made me pretty skeptical (emphasized below):

The FHA is on the hook for lots of “underwater” loans, taken out by low-income homeowners who got special low down-payment deals and — in case you didn’t notice — unemployment hit a 26-year high in August, with no prospect the 9.7% jobless rate will go down any time this year.

Really? No prospect at all? Not  even an itsy-bitsy prospect?

I know it is something of a debate as to whether we’re currently seeing a real recovery or something more akin to an extended dead cat bounce. I personally kind of oscillate between the two views and I think there is a good deal of evidence supporting either side.

But I tend to think we’re definately seeing a slowdown in unemployment and I wouldn’t be at all surprised to see it go down by the end of the year.

So, Mr. McCain, I’m watching you. One of the greatest things about the internet is normal people can go back and see how right or wrong someone was in the past, using this information to judge their future claims.

If unemployment dips below 9.7% by the end of the year, I will make a point that your enormous confidence in the suckiness of the economy was misplaced.

If it does not, I will write a humble post begging your forgiveness. I’m curious to see how this goes.

I’ve Got My Eye On You, Robert Stacy McCain

Robert Stacy McCain (who is totally hilarious, even if you vehemently disagree with him) has a post on an FHA bailout he believes is heading our way. I have no opinion on the matter one way or another because I haven’t really looked into it and I try to have some idea of what is going on before I open my big mouth.

(Although I occasionally fail at even that simple task.)

But one of McCain’s statements made me pretty skeptical (emphasized below):

The FHA is on the hook for lots of “underwater” loans, taken out by low-income homeowners who got special low down-payment deals and — in case you didn’t notice — unemployment hit a 26-year high in August, with no prospect the 9.7% jobless rate will go down any time this year.

Really? No prospect at all? Not  even an itsy-bitsy prospect?

I know it is something of a debate as to whether we’re currently seeing a real recovery or something more akin to an extended dead cat bounce. I personally kind of oscillate between the two views and I think there is a good deal of evidence supporting either side.

But I tend to think we’re definately seeing a slowdown in unemployment and I wouldn’t be at all surprised to see it go down by the end of the year.

So, Mr. McCain, I’m watching you. One of the greatest things about the internet is normal people can go back and see how right or wrong someone was in the past, using this information to judge their future claims.

If unemployment dips below 9.7% by the end of the year, I will make a point that your enormous confidence in the suckiness of the economy was misplaced.

If it does not, I will write a humble post begging your forgiveness. I’m curious to see how this goes.

"Real Unemployment" at 16%? Color Me Skeptical

You may have seen the recent headline “Real US unemployment rate at 16 pct: Fed official. A snippet:

“If one considers the people who would like a job but have stopped looking — so-called discouraged workers — and those who are working fewer hours than they want, the unemployment rate would move from the official 9.4 percent to 16 percent, said Atlanta Fed chief Dennis Lockhart.

UPDATE: Commentor Tom M. takes note that Mr. Lockhart is probably refering to the U6 numbers and this fact was simply not reported appropriately. He says:

When economists, such as myself, talk about the “real” unemployment rate, we are usually referring to the U6 unemployment figure, which is the U3 rate (the published/official rate) plus people that are “part time for economic reasons” among other groups.

If that is the case, it makes most of the rest of what I have to say pretty much void, but I’ll leave it up anyway. Thanks Tom!

A little while back, I called “discouraged workers” the “despair numbers” (basically, they say they want a job, but they aren’t looking for one).

My conclusion was that we’ve always had despair or discouraged workers, so suddenly adding them in now seems like a dishonest tactic to artificially inflate unemployment to some scary level. In good times, we saw unemployment at about 4-5%, so we’re used to thinking about that range as being good. But if you add the “discouraged workers” in those good times, you’re looking at a “good” unemployment rate of about 7-8%.

As for the “wants to work more hours” crowd, I’m open to considering that group in some way, shape or form, but I don’t know how to add them in a way that is honest. Frankly, as a small business owner and contractor, I don’t work as many hours as I would like. But I don’t go around calling myself “unemployed” or even “underemployed”.

If you look at the Bureau of Labor’s stats on part time workers, you can see that the number has jumped about 3 million in the past year. If we add those workers plus the increase in the “discouraged workers” (about 1 million), we get a rate a little over 12%.

But the problem in my mind is that you can’t simply add part time workers to the “unemployed” list to get any kind of meaningful data. Maybe, for the sake of argumentation, you could could cast an involuntary part time worker as half a worker. Then the unemployment rate is a shade over 11%. This is, I think, a not-unreasonable number to use, given that it shaves off the standard number of “discouraged workers” and uses a dampening variable to account for the fact that part-time workers aren’t really “unemployed”, but “underemployed”.

But I could be easily convinced that crunching the numbers in a new and interesting way is basically statistical cheating and we should just use the standard definitions.

Overall, I’m really uncomfortable with the whole “let’s crunch the numbers so the situation look really terrible” methodology because all it does is try to cast the current situation in a bad light by changing the metric. But you can’t use one metric in the good times and another metric in the bad times.

As such, I think the 16% number is really more of a scare tactic than anything else.