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An overview of the July 2014 jobs report

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The Bureau of Labor Statistics reported on Aug. 1, 2014 that the official seasonally adjusted unemployment rate for July 2014 is 6.2 percent, up from 6.1 percent for June, and down from 6.3 percent for May and 7.4 percent for July 2013.

Total non-farm employment increased by 209,000 during the month of July with seasonal adjustment, but decreased by 1,110,000 during the month of July without seasonal adjustment.

The seasonally adjusted total non-farm job creation figure for June 2014 was revised upward to 298,000 from 288,000, and the seasonally adjusted total non-farm job creation figure for May 2014 was revised upward to 229,000 from 224,000. The unadjusted total non-farm job creation figure for June 2014 was revised upward to 592,000 from 582,000, and the unadjusted total non-farm job creation figure for May 2014 was revised upward to 919,000 from 914,000.

Breaking these figures down further, with seasonal adjustment, private sector employment increased by 198,000 during the month of July while government employment increased by 11,000. Without seasonal adjustment, private sector employment increased by 127,000 during the month of July while government employment decreased by 1,237,000.

The seasonally adjusted private sector job creation figure for June 2014 was revised upward to 270,000 from 262,000, and the seasonally adjusted private sector job creation figure for May 2014 was revised upward to 228,000 from 224,000. The unadjusted private sector job creation figure for June 2014 was revised downward to 975,000 from 978,000, and the unadjusted private sector job creation figure for May 2014 was revised upward to 971,000 from 960,000.

The seasonally adjusted government job creation figure for June 2014 was revised upward to 28,000 from 26,000, and the seasonally adjusted government job creation figure for May 2014 was revised upward to 1,000 from 0. The unadjusted government job creation figure for June 2014 was revised upward to -383,000 from -396,000, and the unadjusted government job creation figure for May 2014 was revised downward to -52,000 from -46,000.

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 2.8 percent for July 2014, unchanged from June, and down from 3.1 percent for May and 3.7 percent for July 2013.
  • U2: Job losers and persons who completed temporary jobs, as a percent of the civilian labor force. This rate is 3.1 percent for July 2014, up from 3.0 percent for June and May, and down from 3.8 percent for July 2013.
  • U3: Total unemployed, as a percent of the civilian labor force (official unemployment rate). This rate is 6.5 percent for July 2014, up from 6.3 percent for June and 6.1 percent for May, and down from 7.7 percent for July 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 7.0 percent for July 2014, up from 6.7 percent for June and 6.5 percent for May, and down from 8.3 percent for July 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 7.8 percent for July 2014, up from 7.5 percent for June and 7.3 percent for May, and down from 9.1 percent for July 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 12.6 percent for July 2014, up from 12.4 percent for June and 11.7 percent for May, and down from 14.3 percent for July 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 10.2 percent for July 2014, up from 9.95 percent for June and 9.5 percent for May, and down from 11.7 percent for July 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, is close to 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 90,000 people did in July 2014. The labor force participation rate was 62.9 percent for July 2014, up from 62.8 percent for June and May, and down from 63.4 percent for July 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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