Two numbers will grab headlines when the employment report is issued by the Bureau of Labor Statistics at 8:30 a.m. Friday: the unemployment rate and the change in the number of payroll jobs.
While the consensus of economists polled by Thomson Reuters expects the unemployment rate to increase from 9.8% in September to 9.9% in October -- which would be the highest unemployment rate since June 1983’s 10.1% unemployment rate – the unemployment rate may have already passed double digits.
Similarly, while those same forecasters expect payrolls to have declined by 175,000 in October, they are overlooking other data which could translate to still more jobs losses.
The numbers aren’t intentionally misleading, just narrowly defined and subject to revision as better data are collected.
The unemployment rate, for example, is a simple equation: the number of individuals unemployed divided by the labor force. The labor force is simply the sum of the number of people 16 and over employed and unemployed. To be unemployed an individual must be out-of-work, available for work and actively seeking work. If an individual doesn’t meet all three tests, that person is not unemployed and not in the labor force.
Among the numbers the government reports is the “labor force participation rate” which is the percentage of all individuals 16 and over who are either employed or unemployed.
When the recession began in December 2007, the labor force participation rate was 66.1%; as of the last employment report it was 65.2%.
The change comes from two sides: population growth and labor force dropouts. According to the Economic Policy Institute, if the participation rate had not fallen, the unemployment rate would be well over 10% -- in fact, assuming that all those who dropped out of the labor force remained in it as “unemployed,” the unemployment rate would have been 11.1%.
The unemployment rate is a separate calculation from the report on payroll jobs which is the result of a survey of employers. The Bureau of Labor Statistics works under a tight time frame in putting together the monthly report and as a result the payroll job count to be reported Friday is considered “preliminary” and subject to two revisions, some significant.
Factoring in those revisions – which represent not just numbers but people – economist John Williams, who regularly publishes “shadow statistics” analyses, anticipates job losses to be reported Friday will be closer to 300,000 than the consensus forecast..
Reports from the Conference Board tracking help-wanted ads, Williams notes, show a decline and while fewer newspaper ads could be a function of falling circulation, the Conference Board also finds a sharp drop in online employment advertising.
Beyond those troublesome signs, would be revisions to prior months’ data. Since the recession began those revisions have averaged an additional reduction of 67,000 jobs per month versus the headline number.
Mark Lieberman is the senior economist for the Fox Business Network. Prior to joining FOX, he served as first vice president and manager of economic analysis and research at Washington Mutual in New York. Before that, he served as senior vice president at Dime Savings Bank of New York (which was later acquired by Washington Mutual), where he specialized in credit and risk management. He is a member of the Executive Committee of the New York Association for Business Economics. He has a degree in Economics from the Wharton School of the University of Pennsylvania.
Follow Mark on Twitter at foxeconomics: http://twitter.com/foxeconomics
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