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An overview of the December 2013 jobs report

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The Bureau of Labor Statistics reported on Jan. 10, 2014 that the official seasonally adjusted unemployment rate for December 2013 was 6.7 percent, down from 7.0 percent in November, 7.3 percent in October, and 7.9 percent in December 2012.

Total non-farm employment increased by 74,000 during the month of December with seasonal adjustment, but decreased by 246,000 during the month of December without seasonal adjustment.

The seasonally adjusted total non-farm job creation figure for November 2013 was revised upward to 241,000 from 203,000, and the seasonally adjusted total non-farm job creation figure for October 2013 was not revised from 200,000. The unadjusted total non-farm job creation figure for November 2013 was revised upward to 476,000 from 421,000, and the unadjusted total non-farm job creation figure for October 2013 was revised upward to 911,000 from 909,000.

Breaking these figures down further, with seasonal adjustment, private sector employment increased by 87,000 during the month of December while government employment decreased by 13,000. Without seasonal adjustment, private sector employment decreased by 120,000 during the month of December while government employment decreased by 126,000.

The seasonally adjusted private sector job creation figure for November 2013 was revised upward to 226,000 from 196,000, and the seasonally adjusted private sector job creation figure for October 2013 was revised upward to 217,000 from 214,000. The unadjusted private sector job creation figure for November 2013 was revised upward to 348,000 from 309,000, and the unadjusted private sector job creation figure for October 2013 was revised upward to 443,000 from 442,000.

The seasonally adjusted government job creation figure for November 2013 was revised upward to 15,000 from 7,000, and the seasonally adjusted government job creation figure for October 2013 was revised downward to -17,000 from -14,000. The unadjusted government job creation figure for November 2013 was revised upward to 128,000 from 112,000, and the unadjusted government job creation figure for October 2013 was revised upward to 468,000 from 467,000.

The BLS keeps track of six unemployment rates, which are defined as follows and given without seasonal adjustments:

  • U1: Persons unemployed 15 weeks or longer, as a percent of the civilian labor force. This rate is 3.5 percent for December 2013, down from 3.7 percent in November and October, and from 4.2 percent in December 2012.
  • U2: Job losers and persons who completed temporary jobs, as a percent of the civilian labor force. This rate is 3.5 percent for December 2013, unchanged from November, and down from 3.6 percent in October and 4.3 percent in December 2012.
  • U3: Total unemployed, as a percent of the civilian labor force (official unemployment rate). This rate is 6.5 percent for December 2013, down from 6.6 percent in November, 7.0 percent in October, and 7.6 percent in December 2012.
  • U4: U3 plus discouraged workers, as a percent of the civilian labor force plus discouraged workers. “Discouraged workers” are those who have stopped looking for work because current economic conditions make them believe that no jobs are available. This rate is 7.0 percent for December 2013, down from 7.1 percent in November, 7.4 percent in October, and 8.3 percent in December 2012.
  • U5: U4 plus all other persons marginally attached to the labor force, as a percent of the civilian labor force plus all persons marginally attached to the labor force. “Marginally attached” workers are those who would like and are able to work, but have not looked for a job recently. This rate is 7.9 percent for December 2013, unchanged from November, and down from 8.3 percent in October and 9.2 percent in December 2012.
  • U6: U5 plus total employed part time for economic reasons, as a percent of the civilian labor force plus all persons marginally attached to the labor force. This rate is 13.0 percent for December 2013, up from 12.7 percent in November, and down from 13.2 percent in October and 14.4 percent in December 2012.

As people who are employed part-time typically work about half as much as people who work full-time, it is useful to consider a "U5½," defined as the arithmetic mean of the U5 and U6 numbers. This measure would thus count people who work part-time but wish to work full-time as "half-employed." This rate is 10.45 percent for December 2013, up from 10.3 percent in November, and down from 10.75 percent in October and 11.8 percent in December 2012.

The BLS revised the Current Population Survey, which gathers the data needed to determine these rates, in 1994. Among the changes made, the U3 rate was named the new "official" unemployment rate, instead of the U5 rate. This revision also defined "long-term discouraged workers" out of official existence. With the inclusion of long-term discouraged workers, the SGS Alternate Unemployment Rate, which might be considered a "U7" rate, exceeds 23 percent.

The use of the U3 as the official definition exposes some holes in the BLS's thinking, because according to them, the following are true:

  • A person who loses a full-time job but spends one hour each week mowing a lawn for pay is considered employed.
  • A person who simply expresses interest in having a job is classified as unemployed.
  • "Discouraged workers" are not classified as unemployed or even as part of the labor force.
  • A sharp decrease in a worker's wages when forced to change jobs is not accounted for.

What this means is that the official unemployment rate can fluctuate because discouraged workers (who are not considered to be part of the labor force in the U3 measurement) who re-enter the labor force will cause the U3 rate to spike. The U3 rate can also dip temporarily when such people find temporary jobs and then lose them a month or two later. It also means that the U3 rate will go down when people give up looking for jobs, as 347,000 people did in December 2013. The labor force participation rate was 62.8 percent in December 2013, down from 63.0 percent in November, unchanged from October, and down from 63.6 percent in December 2012. This is the lowest level of labor force participation since March 1978.

Given the problems with the BLS unemployment rates, are they a useful measurement of how well the economy is performing, a wild guess that cannot be accurate despite the BLS's best efforts, or a deliberate fraud by the government? I report, you decide.

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