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An overview of the January 2014 jobs report

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The Bureau of Labor Statistics reported on Feb. 7, 2014 that the official seasonally adjusted unemployment rate for January 2014 was 6.6 percent, down from 6.7 percent in December, 7.0 percent in November, and 7.9 percent in January 2013.

Total non-farm employment increased by 113,000 during the month of January with seasonal adjustment, but decreased by 2,870,000 during the month of January without seasonal adjustment.

The seasonally adjusted total non-farm job creation figure for December 2013 was revised upward to 113,000 from 74,000, and the seasonally adjusted total non-farm job creation figure for November 2013 was revised upward to 749,000 from 241,000. The unadjusted total non-farm job creation figure for December 2013 was revised downward to -270,000 from -246,000, and the unadjusted total non-farm job creation figure for November 2013 was revised upward to 1,013,000 from 476,000.

Breaking these figures down further, with seasonal adjustment, private sector employment increased by 142,000 during the month of January while government employment decreased by 29,000. Without seasonal adjustment, private sector employment decreased by 2,346,000 during the month of January while government employment decreased by 524,000.

The seasonally adjusted private sector job creation figure for December 2013 was revised upward to 89,000 from 87,000, and the seasonally adjusted private sector job creation figure for November 2013 was revised upward to 740,000 from 226,000. The unadjusted private sector job creation figure for December 2013 was revised downward to -138,000 from -120,000, and the unadjusted private sector job creation figure for November 2013 was revised upward to 882,000 from 348,000.

The seasonally adjusted government job creation figure for December 2013 was revised downward to -14,000 from -13,000, and the seasonally adjusted government job creation figure for November 2013 was revised downward to 9,000 from 15,000. The unadjusted government job creation figure for December 2013 was revised downward to -132,000 from -126,000, and the unadjusted government job creation figure for November 2013 was revised upward to 131,000 from 128,000.

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 January 2014, unchanged from December, and down from 3.7 percent in November and 4.3 percent in January 2013.
  • U2: Job losers and persons who completed temporary jobs, as a percent of the civilian labor force. This rate is 4.0 percent for January 2014, up from 3.5 percent in December and November, and down from 4.9 percent in January 2013.
  • U3: Total unemployed, as a percent of the civilian labor force (official unemployment rate). This rate is 7.0 percent for January 2014, up from 6.5 percent in December and 6.6 percent in November, and down from 8.5 percent in January 2013.
  • 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 7.5 percent for January 2014, up from 7.0 percent in December and 7.1 percent in November, and down from 9.0 percent in January 2013.
  • 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 8.6 percent for January 2014, up from 7.9 percent in December and November, and down from 9.9 percent in January 2013.
  • 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 13.5 percent for January 2014, up from 13.0 percent in December and 12.7 percent in November, and down from 15.4 percent in January 2013.

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 11.05 percent for January 2014, up from 10.45 percent in December and 10.3 percent in November, and down from 12.65 percent in January 2013.

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, as 523,000 people did in January 2014. 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. The labor force participation rate was 63.0 percent in January 2014, up from 62.8 percent in December, unchanged from November, and down from 63.6 percent in January 2013.

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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