Friday, February 4, 2011

Voodoo Economics: Unemployment Rate Drops To 9% But Almost No New Jobs Created

Legal Insurrection - Good political news for the Obama administration. The Bureau of Labor Statistics has released a report for January 2011 showing that the unemployment rate dropped to 9%, with over 500,000 people finding jobs.

But only 36,000 new jobs were created in the economy, which essentially is none given the magnitude of the labor force:

"The unemployment rate fell by 0.4 percentage point to 9.0 percent in January, while nonfarm payroll employment changed little (+36,000), the U.S. Bureau of Labor Statistics reported today. Employment rose in manufacturing and in retail trade but was down in construction and in transportation and warehousing. Employment in most other major industries changed little over the month."

I've linked the report, which itself has various underlying statistical tables linked.

I never could figure out how Houdini got out of the chains. So how did the unemployment rate drop sharply without the creation of new jobs?

Update: I'm not sure if this is the key, so correct me if you think I am wrong, but it looks like BLS started using new labor force numbers starting January 2011, based on the most recent census data:

"Effective with data for January 2011, updated population estimates have been used in the household survey. Population estimates for the household survey are developed by the U.S. Census Bureau. Each year, the Census Bureau updates the estimates to reflect new information and assumptions about the growth of the population during the decade. The change in population reflected in the new estimates results from adjustments for net international migration, updated vital statistics and other information, and some methodological changes in the estimation process."

In Table B just below this disclosure, BLS describes the effect of the data change on the December 2010 numbers, and low and behold, it decreases the "civilian labor force" by 504,000 people. Would this downward adjustment explain why over 500,000 appeared to find jobs even though almost no new jobs were created? If this is correct, then BLS simply took 504,000 people out of the labor force which would have the effect of dropping the unemployment rate (which is based on people in the labor force). Tell me why I am wrong, because I must be wrong, it cannot be so simple, or I must be misreading something.

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