What’s Up With That .2% Decline?

This morning the new jobs report was posted by the BLS stating that unemployment had dropped from 10.2% to 10%.  I was actually up at 3am working on something else because with 18 jobs, (count em’, 18 total), listed in the local newspaper, some random employer is not going to save my family’s bacon.  I waited to see what the number was.  When I saw a drop of .2% from October, I had to wonder, what’s up with that?  How could the numbers be going down when I know more people out of work, storefronts continue to empty, and most of the “stimulus” has not been spent.  Yes, the stock market is going up, and then down, and then up, but gold has made an olympic sprint for regions unknown.  We know that small businesses are credit starved by the banks, and investors are waiting around to see how bad this administration’s policies are going to get before they jump in the pool again.  So what ‘s up with a .2% decline?  Are we all just chicken littles screaming about the sky falling, or are our eyes, ears, and gray cells deceiving us?

What Do the Job Numbers Really Mean?

Update: 1:21 P.M.: The jobs report might, to borrow a phrase, “hide the decline” in employment. Two economists who predicted that the November numbers would be better than expected say the improvement may be attributable to quirks in the Labor Department’s statistical models.

The models adjust for regular seasonal fluctuations in employment, but give added weight to fluctuations in recent years. So the 610,000 jobs that were lost last November in the wake of the Lehman Brothers collapse—the first decline in that month since 2001 and the largest ever recorded—figured heavily into the Department’s estimate of new jobless claims, and could have given “the impression the labor market is improving faster than it actually is.”

Said one of the economists: “[I]t may not be a sign that we have gotten to the point where we are going to see sustainable gains in employment.”

The seasonal adjustment issue seems to have worked in reverse for October, making it appear as though the economy shed more jobs than it actually did. The economists cited in the story also correctly predicted that the jobs report would revise October assessments downward (as noted below).

Last Updated: 10:41 A.M.

In decidedly felicitous timing for the President and his jobs forum, November saw a sharp decline in new jobless claims as unemployment fell to ten percent.

New “non-farm” jobless claims for the month were just 11,000, the lowest since December of 2007 and a fraction of the 110,000 job losses in October. Many analysts feared that jobless claims would actually increase month-over-month to as many as 125,000 to 130,000.

But the news isn’t all good. Jobs were added in education, government, “temporary help services” and, of course, in the perpetually growing health care sector. But employment actually fell in the construction, manufacturing, and information sectors. And there remain 8 million more unemployed Americans than there were at the beginning of the recession. (emphasis mine)

In testimony before a Senate committee yesterday, Fed Chairman Ben Bernanke said he expects a “moderate” recovery in 2010 and a slow decline in unemployment numbers. As recently as last month, Bernanke warned of the possibility of a “jobless recovery,” in which employment numbers lag behind increases in output.

Indeed, labor participation—the percentage of Americans employed or actively looking for work—fell this month to 65 percent, the lowest it has been since the start of the recession, and the size of the labor force fell by nearly 100,000. So the decrease in jobless claims could be something of a statistical illusion, as more and more Americans remove themselves from the market for work.

Teenagers, high school graduates, and high school drop-outs left the labor force in large numbers, an exodus that could account for much of the dip in jobless claims.

The number of long-term unemployed—people out of work for six months or more—also increased by 293,000 for the month, bringing the total to 5.9 million Americans or over 38 percent of the unemployed. As the chart below shows, November brought a corresponding month-over-month decrease in the short-term unemployed.

So when the report is broken down, our observations are still on the money.  Nope.Not.Crazy.At.All.

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