With so much uncertainty about the direction of the economy in 2012, everybody jumps at the slightest possibility of good news. Investors, employers, politicians, business owners and job seekers all want good news.
The most recent Employment Situation report by the Bureau of Labor Statistics indicated that we added 243,000 jobs during the month of January and the official unemployment rate dropped to 8.3 percent.
This report, issued by the United States Department of Labor on Feb. 3, contained several anomalies and important details along with the headline numbers. Let's decipher these before confirming if it is good news for job seekers.
How it works
The Employment Situation report uses two surveys to obtain its results. The household survey helps calculate the unemployment rate. The establishment survey is used to calculate job creation.
BLS forecasting models use the data from these surveys to produce the report. The model is transparent. It’s not a black box and anyone with the desire and Excel expertise (with some add-ins) could recreate the reports.
What the household survey tells us
The unemployment rate declined 0.2 percent during January. This means that as of the end of the month, 12.8 million people were classified as unemployed. But this number doesn’t tell the full story. Nearly 43 percent or 5.5 million of those have been unemployed for at least 27 weeks.
In addition to these 12.8 million people, another 8.2 million were working part-time, and not by choice. They either can’t find full time work or had their hours reduced.
During the past year, 2.8 million people have looked for work at some point but have given up hope of finding a job and stopped looking. Or, they temporarily stopped looking for work for a personal reason. They aren’t counted as unemployed because the definition of “unemployed” means that you are available and actively looking for work.
When we put these numbers together we have nearly 24 million who are feeling employment pain to varying degrees.
We also have to be careful when we use the latest data to compare results with previous months. In January, the BLS updated its population estimates to reflect the results of the 2010 Census. It was trying to provide a more accurate employment picture.
But as a matter of policy, it doesn’t revise previous months’ data to reflect the census data. So, comparing January 2012 to January 2011 presents anomalies because the former uses 2010 Census data and the latter uses 2000 Census data as a base. The magnitude of the change is in the hundreds of thousands, so it will certainly impact comparisons.
What the establishment survey tells us
The increase in jobs had some positive signs. Jobs growth in January was seen across numerous sectors, including professional services, business services and manufacturing. Previous increases were concentrated in temporary jobs and low-paying industries.
One serious concern, though, is wages. The average hourly wage in January was $23.39 per hour, an increase of only four cents from the previous month. Over the past 12 months, wages have increased by just 1.9 percent, hardly sufficient for consumers to feel confident about the economy.
It’s important to take these results with a grain of salt, because the BLS usually reports significant revisions to its results in future months. Lately, the revisions have been positive, which means the employment sector is performing a little better than these statistics will tend to show.
Should we pop the champagne bottle?
While the top-line numbers are positive, delving a little deeper reveals some serious concerns about long-term unemployment and underemployment, as well as stagnant wage growth.
Our economy still needs to create an additional 7 million jobs just to return to the number that existed in 2007. At the current rate, it will take us many years just to get back to where we were.
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