What’s the unemployment rate? According to a recent release and upward revision of jobs by the Bureau of Labor Statistics, the national unemployment rate is 7.8% and looking better by all accounts.
But there’s always a political angle to it, especially after watching President Obama dial-in a debate that obviously made people wonder what exactly is going on with jobs numbers. Even Jack Welch, former GE head, asked the question of how a sluggish economy can somehow chip away at an unemployment rate that has undeniably been so stubborn for so long.
So let’s look at the details, and examine some points about the process of determining the unemployment rate of our nation. This involves two main surveys that determine payroll jobs and our national unemployment rate. … Be aware, there be math ahead!
The process of determining the unemployment rate is an estimate. The exact method of working the numbers comes from the Current Employment Statistics Survey (CES) and the Current Population Survey (CPS), two separate surveys that help determine the state of our workforce. The CES uses nearly 500,000 workplaces (both public and private), and the CPS provides a 60,000 household sample (for reference, Gallup uses only 1,000 in their sample).
Needless to say, there is a lot of data that is used to derive our rate of unemployment, and we even have alternative measures, or “U” numbers, that correspond to different aspects of the unemployment rate itself. From U-1 to U-6, we can get very specific in certain areas of how the U.S. is working.
Our most common “U” is the U-3, which is the “official unemployment rate,” the one that most people use in conversation and official political messaging. This is the number that’s currently under attack in this election cycle, and in some ways, a justified complaint. After all, the real unemployment rate of Detroit sits somewhere in the upper deck of digits, but the “official” number is pretty misleading.
We should be honest about what employed, unemployed, and underemployed mean in the world, but we should also remember that you can’t say the “U-3″ is inaccurate by using the “U-6″ (total unemployed, including part time underemployed workers) as evidence, or imply that only one of the “U” alternative measures are inaccurate (as all of the “U” numbers are derived from the same Current Population Survey).
Divergence of CES and CPS
When the news says, “payroll is up and unemployment is down,” you’re looking at two numbers. The CES survey notes the business payroll side (and government payroll side), a very good number to use in determining what’s going on out there in the world of work. Unemployment numbers are the CPS results that show trends and basic malaise of our workforce. So in terms of Jack Welch, who noticed what everyone else noticed in a drop in unemployment coupled with a lukewarm payroll bounce, we should wonder what happened in our economy, and what the divergence of CES and CPS ultimately mean in the real world.
For the 114,000 new private-sector jobs, this is a good thing. We’re still a couple months from the hiring boom of retail season, and at the very least, we’re seeing some movement on payroll. But that doesn’t square with the -0.3% adjustment shown by the CPS, which is a rather different measure, mostly because it is always an estimate and a different survey. So it’s definitely difficult to jeer or cheer the numbers without seeing the trend line, and applying a few heuristics to our data.
You can look at it two ways:
The CES could provide big payroll numbers next month and a marginal decrease in the U-3, which would reflect actual hints of recovery.
Or, the CES could show weak payroll numbers in October, and a static U-3, which shows more workers simply falling off the radar.
The problem with both scenarios is that we’re using a poor method of applying these numbers in the heat of this election season, and we’re all suffering brain damage from it. The real benefit to both investors and public policymakers in these job numbers isn’t the political application, but the long-term application of data to reflect on all sorts of policy and business measures.
So while President Obama may jump at the bit to celebrate a CPS survey success, the next survey might swing right back to 8.1%, and a revised payroll number could really hit him before the election itself. And conservatives who cry about the BLS numbers as BS should remember these “skewed” numbers gave President George W. Bush cover on his exit from our recession. Imagine the same numbers adjusted their way in 2009, and just be thankful the American public has a short memory.
Tuesday, November 6th, 2012 is Election Day. The recent BLS adjustment for September was October 4th.
If there’s an economic October Surprise, this could be it (if numbers come in on time). If there’s a big jump in payroll coupled with a modest decrease in unemployment, it will show two separate surveys that indicate a stronger economy. It will also help the notion that there are more jobs for people out there, and the economy will catch up in due time. GDP data always has to run to catch up, and we’re seeing some signs of increased consumption in the winter.
But if the numbers slack off, or the rate jumps up a little, these numbers are just another plot point among the many mediocre points in this recovery. I think the economy continues to be the main point of the election, and this is a big deal, especially with the VP debate coming up.