Friday, June 5, 2009

Why the Reduction in the Pace of New Job Loss is Worse News Than Reported

Today a report came out that the total number of jobs lost was only 345,ooo during the month of May. This was down from over 500K jobs lost in April. What is really interesting is that the unemployment rate went up fairly significant to 9.4% from 8.9%, which is a .5% increase. Whereas in the previous month it went up from 8.5% to 8.9%, or .4% even though about 504,000 jobs were lost. Why?

The following link is helpful in understanding it.
The link is to the Bureau of Labor Statistics who is in charge of measuring unemployment from month to month. What you will notice there is that under household data the number of employed people went down by an additional 437K. The total number of unemployed people in the month of May actually went up dramatically by 787K. It's just that since there were 437K less people employed as part of the "Civilian Labor Force" in the line above it, these are not counted in the net number of the 345K who are newly unemployed.

What this may mean is that people have stopped looking for new jobs. By the BLS economic data definitions for this category, once a person stops looking for a job because they are discouraged and can't find one, they are no longer considered part of the "Civilian Labor Force". Thus, they are no longer counted as unemployed. Although, as they may tell you, they are still unemployed indeed. On the other hand, the civilian labor force in total went up. The other interesting news is that average weekly hours worked went down. This means that companies are not laying people off but rather requesting they work less hours. It's a good way to offset firing people. But it is a bad indicator because these companies may lay people off down the road rather than just scale back their hours as they are currently doing. But how long can that go on?

The way the media reports these numbers as though this is good news is incredibly misleading. You could actually make the argument that based on that table in the link, that May was maybe the worst month of the year - at least since March. That little slight of hand with the drop off of the 437K illustrates this. It's why the rate went up relatively higher despite the relatively lower total number of unemployed who were counted.

I know Americans are optimistic by nature. But burying your head in the sand is never a way to get out of hard times. I think the only option for unemployed people at this point is to look towards entrepreurial ventures rather than trying to get a job that's just not out there. Starting a business is probably your best bet other than just a temp job. Americans need to call their politicians out, especially President Obama, and put pressure on them to rethink the policies they are enacting. The GOP needs to be advocating and emphasizing new businesses rather than government "stimulus" spending to tide us over. They need to talk up policies designed to spur America's creativity. They need to focus on specific pro-business policies. "Green jobs" don't get that because they are not a panacea.

Unless there is a dramatic course reversal soon, we will remain in serious ... [fill in the blank].

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