more on jobless rate underreported by us dept of labor

[David Farber <dave () farber net>]

Begin forwarded message:

From: Barry Ritholtz <ritholtz () optonline net>
Date: May 29, 2004 7:26:01 AM EDT
To: Dave Farber <dave () farber net>
Cc: Charles Jarrell <bellmac () bellatlantic net>
Subject: RE: jobless rate underreported by us dept of labor

Hey Dave and Charles,

Its a bit more complicated than the BLS reported data. Allow me a brief 
explanation for the non-economists out there. There are 3 primary 
measures of unemployment. These are admittedly superficial and can 
often be misleading. Drilling down beneath the headlines is difficult 
-- its not a skill set the average person (or economist, for that 
matter) has.


1) Employment Situation: Its a monthly measure of "Nonfarm payroll 
employment" and it is just what it sounds like. Its a measure of 
percentage of the labor pool that is employed.

The rub here is that the labor pool shrinks and grows in ways the 
government often misses. Example: When frustrated job seekers "give up" 
looking for work, while they are still unemployed, they have dropped 
out of the labor pool (Not working, not looking for work). The 
unemployment rate actually goes down as people gives up job hunting 
(Same # unemployed + < labor pool = < % of unemployed !)

Additionally, the Bureau of Labor Statistics (www.BLS.gov) isn't very 
good at quantifying under-employment. An industrial manager loses his 
$90k a year job, and eventually is hired elsewhere at half his salary 
in a different field. He's under-employed, but the stats show him as 
holding a job: He lost one, he found one, net impact is 0. (Obviously, 
the impact is much greater than zero).  Nor does the BLS do a very good 
job catching new trends. When older, recently retired workers 
re-entered the labor force after the market crash (their retirement 
accounts got whacked), the BLS was slow to pick that up.


2) New Jobless Claims is another one of those misleading headline 
statistics. They ae released each Thursday, and they represent the 
number of new applications for unemployment benefits. Good News: They 
have been trending downwards from nearly 500k / wk to under 350k. Bad 
News: There are some estimated 2-3 million exhaustees -- workers who 
have used up all of their unemployment insurance benefits and are still 
unemployed -- but do not show up in this statistic.

Additionally, there is the Challenger Job-Cut -- its a monthly report 
on the number of announced corporate layoffs. The BLS also has a Mass 
Layoff (50 or more) report, which they tried to kill a few years ago 
(It makes the administration look bad).


3) Augmented Unemployment: This was invented by Fed Chair Alan 
Greenspan in the late 90s to catch the data of unemployed missed by 
traditional measures. Its presently reading about 8.5%, while in Europe 
its closer to 11%.

You can read more about it at "The Big Picture"  
http://bigpicture.typepad.com/comments/2004/01/augmented_unemp.html


Finally, you can track these (and other econ related releases) via the 
web:

Barrons has the best calendar of these data releases. But they also 
drill down below the headlines in jargon free English, and explain "why 
investors care" about the news. (And its free):
http://online.wsj.com/public/page/0,,barrons_econoday,00.html


I'm not an economist (but I play one on TV); Here are a few of the 
actual Economists I read regularly:

Arnold Kling (http://econlog.econlib.org/) has a thoughtful, right of 
center weblog I peruse regularly. Kling invented "LUCY" -- the labor 
utilization capacity index which has been a good forward looking 
indicator of job creation.

John Irons runs the comprehensive Argmax (http://argmax.com/mt_blog/), 
a rich site with lots of good data and details (He's politically across 
the aisle from Kling). Good pick ups on news, data and definitions.


Lastly, I have a report coming out next week analyzing the 
interrelationship between the apparent improvement in jobs data and the 
very poor polling on economic matters for the incumbent President. If 
there is any interest, I will post it on line for IP readers.


Have a good weekend,



Barry L. Ritholtz
Chief Market Strategist
Maxim Group
britholtz () maximgrp com
(212) 895-3614
~~~~~~~~~~~~~~~~~~~~~~~~~~~~
The Big Picture:  The capital markets, geopolitics, technology, media 
and entertainment
http://bigpicture.typepad.com/comments/ 

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