Drop in unemployment due in large part to workforce dropouts

Every is patting themselves on the back when it comes to the drop in unemployment. The media is crowing about the low unemployment level.  But, as always, things are more complex than they appear. A large amount of the improvement in the unemployment rate is due to workers dropping out of the labor market as measured by the Labor Force Participation (LFP) rate.  When the recession was at it's peak, people simply could not find work and stopped looking.  Now, just as some of those workers return to jobs, retirees are heading for the door.  All this means the LFP will continue to stay low.

During the "good times" from 1991 to 2003, the Labor Force Participation (LFP) rate averaged about 66.7%. That is about 67% of the population were considered part of the labor force. At the beginning of the Recession (December 2007), the LFP was 66% and as late as November 2009 the figure was 65%. Now, after the current recession, only 63% of the people in the US participate in the labor market. This means that over 9 million workers are "missing" from the pool of would be workers. 

Let's look at the current Labor Force Participation since the start of the recession in December 2007. 

The chart below adds the "missing" workers back to the the total number of unemployed. The workers are missing because of the low participation rate.  Using this new figure, the unemployment rate is still about 12%.  And the unemployment rate peaked at 13% during the recession.

Version 3

Jobs Report Non Farm Payroll Variability

Jobs Report Non Farm Payroll Variability

When the non farm payroll number gets reported each month, the Bureau of Labor Statistics will often say the actual number can vary by as much as 100,000 jobs above or below the reported number. But how variable are the numbers ?  To find out we computed a 12 month moving average of the changes. We then added upper and lower limits equal to 2 times the standard deviation.  

The blue line below is the 12 month moving average while the green line represents the upper limit and the red line the lower limit. The NFP moving average change plummets to minus 600,000 in June of 2009.  We were losing an average of 600K jobs per month. The average rebounds from their so that by December 2011 we were gaining 200K jobs per month.  

The trend has been remarkably stable since then with the economy generating about 200K jobs per month since December 2011.

A quick (fun) analysis of the crowd demographics at Microsoft CEO annoucement

Corporate Culture in the US is incredibile self interested and secretive.  Which is why we love glassdoor.com. We know employee cannot be fully honest, either because of corporate brainwashing or self-censorship.  But at least they are trying.

"It is difficult to free fools from chains they revere" -- Volatire

Also economics can be about using commonsense to figure out how to collect important economic data. In this case we use visual demographic clues to determine the demographic profile of a Microsoft development lab

Big tech companies are very secretive.  They spend millions defending trade secrets and guarding information (unless your the NSA).  This approach also spills over to HR and public disclosure.

So, when "the curtain is pulled back" you can get a revealing glimpse.  From these pictures, you get an idea of the demographics of the people who create Microsoft products. From a visual review only, we can see that they are male and young, with approximately 1/2 white men, 1/3 as

Unfortunately, when I scan the background crowd at Microsoft which was assembled for the announcement of new CEO Satya Nadella, I see only one visible black person beside John W. Thompson.  I also see very few women.

Picture #7. Gates, Nadella and Ballmer. Approximate demographic count: white men 30, white women 2, Asian men 6, black men 1. Note: Black person smiling in the rear next to two armed camera man

Picture #10. The new CEO Satya Nadella. This one is tougher due to blurry images. Approximate demographic count: 6 Asian men, 1 white women, 5 white men. Nadella is not included in the count.

Picture #11. John W Thompson, chairman of the board, speaks to the crowd.

Picture #13 below

This next photo is a gold mine so we will split up the tiers to help with the count.

Bottom Row: 17 white men, 9 Asian men
1st tier including glass: 20 white men, 4 white women, 5 Asian men, 3 Asian women
2nd tier: 7 white women, 5 white men, 4 Asian men, 3 Asian women.
3rd tier: 3 white men, 1 Asian man (including 2nd tier reflection)

Note: you wonder why the 2 floor is so much more diverse than the ground floor.

Here are the totals of all the picture counts

		white male	white female	Asian male	Asian female	black male	black female	total
Picture #7		30	2	6	0	1	0	39
Picture #10		5	1	6	0	0	0	12
Picture #13		45	11	19	6	0	0	81
Total		80	14	31	6	1	0	132

Here are the percentage breakdowns

		white male	white female	Asian male	Asian female	black male	black female	total
Picture #7		23%	2%	5%	0%	1%	0%	30%
Picture #10		4%	1%	5%	0%	0%	0%	9%
Picture #13		34%	8%	14%	5%	0%	0%	61%
Total		61%	11%	23%	5%	1%	0%	100%

Microsoft would argue that the demographics of the total workforce are not as skewed. (Yawn).

We would say, in 30 years, Microsoft has done little, to change the male (white male) dominated IT development culture and the pictures prove it.

Lastly, it is interesting to note that Microsoft must rarely assemble this many people since they have no large meeting room.

Growth in Ballot Initiatives

It looks like both progressives and conservatives are using ballot initiatives to directly implement legislation. Here in New Jersey, we recently approved a small increase in the minimum wage from $7.25 to $8.25.

There was also another interesting ballot proposal in California that did not get enough signatures to be included on the november ballot. The voter initiave would have increased the oil and gas extraction tax to 8% in california and used the money to reduce education costs.  California has no natural resource extraction tax.

The website for the California Modernization and Economic Development Act

LA Times story on CMEDA. 

Altarum Institute: The Business Case for Racial Equality

The Altarum Institute and the W.K. Kellog Foundation have published a paper called "The Busniess case for Racial Equality".  The report document studies which show increasing minority wealth and income would add to the GDP, reduce health care costs, add to government tax revenuse, increase producitivity, reduce government transfer payments and increase corporate profits.

Some of the proposal include ending residential segragation, end school segregation, reducing the prison population and investing in education.

We believe, while the proposal are good, the US economy is a slow growth, zero-sum economy with winners and losers.  There is absolutely no incentive for people who benefit from the system to help those who do not.

Reducing poverty by moving Poor people to Rich Neighborhoods

One of the best and cheapest solutions to long term poverty is moving poor people to rich neighborhoods.

New Jersey was ordered to create just such a plan i 1983 but has resisted.

This paper studies the effect of the Mount Laural ruling in New Jersey in 1983 and the subsequent creation of the Ethel Lawrence Homes in Mount Laurel, NJ

The paper called: "Lessons from Suburbia in Standford Universities Pathways Spring 2013" documents a model of why residents have lower mental stress levels and higher achivement in school.

November 2013 Unemployment Analysis: Unemployment rate drops to 7.0%; 203K new jobs accross all sectors

The US unemployment rate fell to 7.0% as the 203,000 Non Farm Payroll jobs were created 

The US national unemployment rate fell to 7.0% as the economy continues to recover from the 2007-2009 recession. The November report had the moderate job growth but less than expected given need to support 4.1% annual GDP growth as reported by the BEA.  If the economy continues to grow above 4.0%, we could see job gains above 300,000 per month.

There was a broad, across the board increase in Non Farm Payrolls except information and finance. There were +14,000 government jobs created at the state and local level.

Below is a chart of steady job growth since December 2009 with an average of 194,000 jobs created over the past 12 months.

The national unemployment rate decreased to 7.0% which means there were 10.9 million unemployed workers out of a potential labor force of 155.2 million. There were positive revisions in the previous months NFP numbers of +8K. jobs. The black unemployment rate was 12.5%.

The civilian labor force increased by 455,000 and the number of people reporting themselves as employed  increased by 818,000.  The labor force participation rate was 63.0% and the employment to population ratio was 58.6%.

The private sector added 203,000 jobs while the government lost -7,000 jobs. There were 4.1 million people classified as long-term unemployed (out of work for 26 weeks or longer), the same as last month.   About 7.7 million people who were underemployed (working part time but wanted full time work). A total of 18.6 million workers were unemployed or underemployed (12.0% of the workforce).

The unemployment rate for women was calculated at 6.2% and men at 6.7%, while the rates for other groups remained largely unchanged: teenagers (21%), whites (6.2%), and blacks (12.5%). The Hispanic rate dropped by -37 basis points to 8.7%. A huge drop show the economy is recovering is paces that generate Hispanic employment.  Black teenage unemployment was 36%.

The Dow Jones Industrial Average dropped by about 1% on the news then moved well above 16000 for the month to close at 16,500 for the year.

The Political Economy

In the news of the political economy, the furloughed federal government workers returned to work and Janet Yellen will replace Ben Bernanke as the chairman of the federal reserve.

The Big Story

The big story is the continued high unemployment rate, low wages and slow growing economy.The year 2014 is shaping up a a decivisve year in US economic news.  In 2014, we will finally have gained back all of the jobs lost during the recession.

Black Unemployment

The national black unemployment rate was set at 12.5%. The number of black people holding jobs increased by +101,000 while the labor force was reduced by -6K causing a 0.5% decrease in the unemployment rate. The 12 month average black unemployment rate has been 13.3%, so we are finally dropping below the 12 month trend.

There was a 1% decrease in the "Real" black unemployment rate.  There were also improvements in the national rate (-26 basis points) and the black rate and U-6 rate (-0.6%) each leading to a large improvement in the "real" black unemployment rate.

Household Survey Details for November

As previously mention, there economy recovered from the government furhough. However, all of the trends for the long term unemployed worsened in November

The long-term unemployed (27 weeks or more) was 4.1 million people which represents 37.3% of the unemployed.  The median duration of unemployment was 17.0  weeks  while the average duration was 37.2 weeks.  

The “work part-time, wants full-time,” fell to 7.7 million.  This is a measure of excess labor in the marketplace. About 2.1 million workers were marginally attached to the labor pool.  They have looked for work in the last 12 months but not in the last four weeks.    The report estimated that there were 762K discouraged workers (part of marginally attached) who are not looking because they believe there are no jobs for them.

All three categories dropped in November which is a postive sign of a tightening labor market. 

Establishment(Business) Survey Results for February

Non Farm Payroll increased by 203,000 which is well above the 12 month average of 150K jobs created since Dec 2009 (+194K Average for past 12 months). Shockingly, even government payrolls expanded(+7,000). Growth was broad based, with gains in manufacutring and services. Transportation added 30,000 and retail trade added 22,000 postions while business services increased by 35,000. Healthcare added 29.6K and leisure services jobs increased by 17,000.

Key sectors of the economy fared well. Construction added 17,000 while Manufacturing jumped 27,000 spots.  Temp Help, a negative indictor, grew by 16,400 workers.

Below is a chart of the job gains in the non farm payroll categories. 

Non-Farm Payroll Revision

September was revised up from +165K to +175 and October was revised down -4K to from 204,000 to 200,000 for a total upward revision of +8K.

ADP

ADP report a non farm payroll increase of 215,000 jobs. Small business (1-49) employees accounted for 105,000 new jobs. Medium sized business(50-499) added 48,000. And large businesses(500>) added 65,000 employees.