Wow! 243,00 new jobs created in January

The headline number from the Unemployment Report this morning showed 243,000 jobs were created, more than the highest estimated increase by any of the economists surveyed before the report was released (the average expected increase from the economist survey was 120,00 jobs). The unemployment rate fell to 8.3%, again lower than predicted, and certainly good news for President Obama. Job growth was nearly across the board ”“ in retail, construction, manufacturing, business services, and the hotel and restaurant industry. You can believe all this if you want, or you can go into the details in the report for some interesting context.

First, ever since the credit crisis of 2008, there has been a trend in the unemployment report that shows a declining participation rate in the job market. While a whopping number of jobs were created in January, a far larger number of people left the labor force – 1,752,000 in fact. The percent of the total working population who did not have jobs rose to 36.7%, an all time high. It’s no wonder the unemployment rate fell, when the denominator shrinks so markedly. The total number of people employed fell by 737,000. So what do you want to celebrate ”“ the 243,000 who got jobs, or the million or so people who dropped by the wayside and are no longer counted in the data?

It makes you wonder how much faith you can put in the Labor Department reports. For example, the government, the business press, and Wall Street rarely report on the fundamental ways in which the US labor market is changing, with so many people dropping out of the work force. The press has had a hard enough time getting to grips with the Labor Department’s Birth/Death model, which over time adds to the number of people reported as employed. The model is supposed to compensate for the inability of the government to get good information on the number of new businesses created every month and which presumably add to employment. The problem is the model has been shown in the past to have significantly overestimated the number of jobs created by new businesses. Economists still don’t know if the model is appropriate, and how much of the 243,000 jobs created this month are the result of the Birth/Death model.

The other odd thing about the January report is that it does not coincide with most other evidence about the US labor market. There have been tens of thousands of high paying jobs lost in recent months on Wall Street. American Airlines just announced it is cutting 14,000 employees this year. Challenger, Gray and Christmas, an executive outplacement firm that does job surveys, reported that this January job layoffs increased by 28%. The Gallup survey on business employment indicated a rise in unemployment at the start of this year.

Maybe the 1,752,000 workers who this past month were relegated to government statistical oblivion don’t matter anymore to the economy. Wouldn’t it be nice to just keep focusing on the fewer and fewer people who have jobs, and the 250,000 or so in good months who join them? The problem here is that those 1,752,000 people who have gone to Labor Department purgatory no longer have the money to spend that they used to have. This annoying little fact keeps showing up in the lackluster revenue growth displayed by corporations reporting on 2011 Q4 earnings. The number of companies that have reported revenue growth lower than expected by analysts is higher than it has been in many years. The flip side of this is that the revenue and earnings ”œbeats” on the upside are far fewer than expected. For all the S&P 500 companies, upside surprises generated 45 cents per share for the index average, but of this, a full 43 cents per share came entirely from the technology sector. And if you delve into the technology sector, what do you find? Revenue growth for the sector has been in excess of 15% last year, but strip away Apple, and the number falls to 5% growth.

The sad fact is that there are 1,752,000 fewer people this month who are going to be able to afford Apple products or any other fancy new technology toy. Not only are these people out of a job and facing cash flow shortfalls, prices are going up everywhere they look. The price splurge engineered by the Fed last year with QE2, in their intention to generate at least 2% inflation, hasn’t gone away. The ISM Services Sector report this morning, which showed surprising growth in services beyond what economists expected, also showed surprising strength in inflation. Companies reporting in the ISM survey noted price increases in ”œAirfares; Beef; Chemical Products; Chicken; Crab; Coffee; Diesel Fuel; Gasoline; Medical Supplies; Paper; Petroleum Based Products; Resin Based Products; Vehicles; and Wire.” The only commodity going down in price was corrugated boxes.

The problem facing the unemployed, the underemployed, the part-time workers, the millions of people who have fallen off the labor rolls altogether, and even those ex-bankers who had to take a job in January in poorly paying industries like retail, medical, leisure and hospitality (in other words all the sectors in which jobs were growing in January), is that the cost of living is going up relentlessly while their wages are stagnating at best. The US needs these people at full employment, because full time workers contribute to federal income tax revenue, which is increasingly in short supply. The Wall Street Journal reports that in 2011 there was a surprising decline in contributions to federal tax revenue from corporations. From 1987 to 2008, US corporations paid on average 25.6% of their US revenue in taxes; last year they paid only 12.1%, the lowest contribution since 1972. Haven’t you been reading about record corporate net income in 2011? These stories are true, so why aren’t corporations contributing more to the Treasury, and why is the burden falling increasingly on cash-strapped individuals?

Corporations are having such a bumper year in net income that you would think they would have no problem keeping their pension plan obligations up-to-date. Sadly, this is not happening. Among the S&P 500 companies, 97% had underfunded pension plans in 2011. The amount of the shortfall was nearly a quarter of a trillion dollars. Blame is being placed directly on the Federal Reserve and its zero interest rate policy, as pension plans, insurance companies, endowments and other charities have had a difficult time meeting interest income targets when interest rates are at zero. Somehow, this story has traveled below the public radar, and therefore only a few companies have felt obligated to top up their pension plan with contributions from their earnings.

The millions of people struggling for food and shelter and clothing have one bit of good news: they can buy a car! Banks are making car loans with abandon. They argue that it is far easier to repossess a car than to foreclose on a home, and the amount at risk on a car loan is of course much smaller than on a home loan or equity line of credit. The Market Watch news service reports that the banks are helping Detroit sell in excess of 11,000,000 cars this year by increasing their lending to sub-prime borrowers (those with low credit scores from 550-619). This segment of the population comprised 40% of all car loans last year. Even more interesting, loans to the segment known as ”œDeep Sub-Prime”, with scores less than 550 and a high risk of default, were up 17% last year.

How do the banks get around the fact that even these credit-challenged customers can’t afford the monthly payments on an average car loan? Easy. The banks are doubling the maturity on their car loans. Instead of granting four year loans, they are granting eight year loans to keep the monthly payment down. You don’t have to be an expert to know the rate of depreciation on a typical car is very quick, and by about two or three years the banks will be underwater on most of these loans.

But that is two or three years from now ”“ an eternity in financial terms. Even if things really went bad for the banking industry with its car loans, all the evidence they have suggests that the federal government will be there to bail them out, no matter what President Obama says about ”œno more bank bailouts”. He was more than happy this morning to tout the 243,000 new jobs created and the economy that is on the mend. He certainly hasn’t complained about how Detroit and the bankers are up to their old tricks again. Ben Bernanke hasn’t said a word about deteriorating credit standards in the auto loan market; he’s too busy stripping wealth away from retired people and anyone else with savings. Here we are in 2012, and we have learned absolutely nothing from the debacles of the previous decade.

Well, maybe not entirely nothing. The government has got a lot better in focusing everyone’s attention on only one part of the story ”“ the part where 243,000 people supposedly now have a job, while 1,752,000 who have given up are to be forgotten and made invisible. Except you’ll be able to see them ”“ they will be those people down the street who have lost their home, and are now sleeping every night in their new car.

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Numerian is a devoted author and poster on The Agonist, specializing in business, finance, the global economy, and politics. In real life he goes by the non-nom de plume of Garrett Glass and hides out in Oak Park, IL, where he spends time writing novels on early Christianity (and an occasional tract on God and religion). You can follow his writing career on his website,

16 CommentsLeave a comment

  • The household survey counted 847,000 new jobs in Jan.
    It has also been showing over 371,000 per month for the past 5 months.
    The household is more inclusive and is used to determine the unemployment rate.
    This month’s numbers were praised for it’s accuracy in factoring in the discouraged and underemployed.

  • It is before any of the various issues regarding the ‘surge’ of employment participation in the mid 2000s and the current ‘weak’ employment participation in 2011.

    The trends are highly predictable and relate to the aging workforce, and the entry into retirement by the baby boom generation. The baby boom began in 1946 at the end of the War. That cohort is now 66 years old. Retirements begin rising at 60 and above (401k payouts begin at 59 1/2, SS payout can begin at 62, many government pensions begin at 55), and based upon the demographic trends employment participation would peak in 2005 (as it did) and begin to decline after 2009 as it has.

    Participation is not anticipated to recover to 67% at any time in the future, but to go into a long term declining trend to the low 60s% by 2020. The reality is that through 2012 and after there will be waves of retirement. If job growth can continue above 200,000 or even close to that level, the wave of baby boomer retirements will push unemployment under 8% by year end.

    Oh, and labor shortages could get incredibly severe by 2015. The shortage in IT right now is becoming increasingly problematic. Unemployment rates in IT are under .5%. Labor markets where I live are already getting tight, as the Midwest unemployment rates are falling below 5%.

    I think a number of those 1,752,000 could be standing in break rooms with ‘Congratulation on your retirement’ cakes being put on paper plates.

    Here is the article:

  • The people who really cannot afford buying autos better make sure that the car is big enough to house a family, be able to disengage the GPS monitoring, be ready to leave at a moments notice and have backup camping gear.

  • I’ve been working in and out of Houston Texas for the last 3 months and there are lots of jobs around the Oil industry with the current Fracking Boomlet. On the flip side I have never noticed so many panhandlers, been panhandled so much and in so many different places as Houston. Also if you have any type of criminal record, too many tickets in the last 7 years, poor credit due to no job, or smoke pot and fail a drug screen, no decent job for you. There is work for the select few.

    “There are two types of folk music:
    quiet folk music and loud folk music.
    I play both.”

    Dave Alvin

  • Just the opposite, you work until you die or are crippled by dementia. My office mate and I joke about how our company should have a coffin on hand in case one of us oldsters keels over at work.

  • That’s my impression also. Having had our home equity, our pensions, our ira’s, our 401k’s emptied out by the banksters we are left with only our own enfeebled labor to fall back on.

  • “That was one hell’uv a retirement party in January Scotjen!!!!!” But it seems that the scary number isn’t reflective of The Big Picture Barry Ritholz points out that yearly population adjustments in January severely skewered that headline number. Mish admits as much in his piece. “Some of those labor force numbers are due to annual revisions. However, the point remains: People are dropping out of the labor force at an astounding, almost unbelievable rate, holding the unemployment rate artificially low.” Denninger admits as much in his piece. They both conclude however that the overall trend in folks “dropping off”, “giving up”…, whatever euphemism you choose to describe it…, is an alarming and on-going trend.

    If Scotjen is right and it is people retiring that make up a significant portion of those people…, I wouldn’t worry so much. That would indicate that there will be job openings for others and the retirees would have Social Security and possibly additional retirement income from pensions or IRA, 401K, etc. to survive on. My personal opinion is that the significant number of those folks are better described as “no longer receiving unemployment benefits” so they are no longer counted as in the work force. They haven’t “dropped out”…, they have been forced out. And they haven’t given up looking for work either. They just aren’t filing claims to indicate they are searching for work. As Numerian points out…, they don’t have any back-up income like a retiree would. Yeah…, I think a lot of people have maxed out their benefits…, the 99ers. They won’t be contributing to any economic expansion or growth…, until they find a job.

    I would also add that Joaquin is right on about retiring. In my situation…, my wife is five years younger than me…, if I retire at 65 I would be forced to buy mandated health insurance to cover her until she can qualify for Medicare. The cost of that insurance would take 75-80% of my entire Social Security benefit…, probably more considering the inflation rate of medical coverage. So…, I will be working…, at least…, until I am 70. I am thinking that I am not alone in this. I do believe that your overall point about the Baby Boomer demographics is right on Scotjen…, and I don’t think that it has been given the attention that it should. But it is a scary thing to think about in relation to the cost of Medicare as a percentage of the budget that is going to occur. I’m afraid that cost is going to outweigh any benefits.

    I think this January wave number is an anomaly…, but smaller and steady waves will be continuing to hit the beach in the future. The only real bright spot I see is in Housing Starts. A couple of big jumps there…, and it seems to have translated into new job creation based on the current numbers. Anxious to see what the next HS number is later this month.

    The Quillayute Cowboy

  • Oh you mean like my mother and stepfather, who wouldn’t have retired but didn’t really have much choice. At least they spent their working years being very careful with their money, paid off their home, and can actually afford to support themselves until they start receiving retirement benefits.

    And neither of their positions was opened up to a younger, energetic worker, they both just disappeared.

    So, yeah, “Congratulations on your forced retirement,” Boomers.

  • and I think it’s good to point out how the changing age profile of the US will alter the basic labor participation rate. I do have a few questions though.

    1) Why does the BLS show the trend in recent past, present, and projected future participation rates as a decrease in youth/middle age (<54) participation and an increase in elder (55+) participation? Link here. BLS appears to show that overall participation will go down, but it seems like most of that decrease is expected to come out of the young/middle aged. Am I reading this table wrong? It appears to say that the fraction of those in the 55+ age group who are working will increase through 2020–and there are also increases in the 65+ and 75+ ranges too.

    2) Do you have a link to your source that shows Midwest unemployment rates falling below 5%? BLS shows in December 2011 that the lowest-unemployment Midwest state is Minnesota, at 5.7%. Next in line are Wisconsin (7.1%), Ohio (8.1%), and Indiana (9.0%). Perhaps they are trending down, but most of them have a long way to go to make it to 5%.

    3) What’s to prevent the following scenario from happening: More boomers than expected do not or are not able to retire because their 401(k)s, pensions, social security, etc. don’t cover costs. They remain in their positions and generally prevent new slots from opening up for many young/middle age people. Alternatively, companies may choose to force the boomers to retire, in which case those that still need additional income will have to find temporary work and will compete with the very young for some entry level positions and part-time jobs. (Edit: And some may not find extra work and will rely heavily on extended family, cutting into spending and savings of their children.) Additionally, companies may choose to not replace the boomers that retire/are laid off for cost-cutting reasons, especially if the economy doesn’t pick back up and current trends are taken to represent “the new normal.”

  • The whole world is shit motifs has got to be tiring. Amazing how good news can be morphed into an ever expanding horror. Also a basic misunderstanding on jobs. The numbers change a lot in terms of individuals. 240k jobs created is 3.5 million losing their jobs and 3.75 million finding jobs. That’s why the natural rate of unemployment is 5%.

  • The BLS unemployment report Friday was the most messed-up communication from our data minders that I have seen in a long while. There is indeed a number for everyone in this report, allowing you to draw whatever conclusion you want about the economy. My interest in my post was on the declining rate of participation in the labor force, which I’ll get to in a minute, including Scotjen’s reference to demographic influences from baby boomer retirements.

    First, some observations from reading over a dozen different interpretations of what all these numbers mean.

    1) English matters. The opening paragraph of the BLS press release says “Job growth was widespread, with large gains in professional and business services, leisure and hospitality, and manufacturing.” In reality, nothing of the sort happened. In January, 2,689,000 jobs were lost, because around that number of jobs are eliminated in the labor market every January after the Christmas season is over. To be technically precise, the BLS press statements should begin by saying “on a seasonally adjusted basis”, reflecting the fact that the BLS adds or subtracts a fudge factor to the real numbers to compensate for known market phenomenon like Christmas season hiring and firing. The Bureau of Labor Statistics never does this and hasn’t for decades; it talks as if the reality is that a lot of businesses like retail and restaurant were hiring like crazy. The media, the markets, and the public pick up on this phony interpretation of reality and derive emotional juice about whether the economy is expanding, and whether now is the time to look for a job. In January, it was definitely a bad time to look for a job, unless you were looking for a mythical seasonally adjusted job. The phenomenon of course works in reverse – the BLS subtracts from the real numbers in November when Christmas hiring begins, so it understates the reality. The public has the common sense to know to look for jobs in November, even if they are only seasonal jobs, but reading this Friday’s press statements (which the media usually regurgitate), everyone would think happy days are here again, and that is not exactly true. One person who probably likes the English used by the BLS is President Obama, which tells us that a government agency is certainly mindful of the interests of the politicians at the top. Also, the BLS report every month is considered the most important economic barometer by the financial markets. The BLS has no interest in undermining its own importance in the political and economic worlds by toning down the absurd way it presents its statistical conclusions.

    2) So where did the 243,000 new jobs come from? From the seasonal adjustment factors derived solely by the BLS statisticians, and kept more secret “than the formula for Coca-Cola,” as one economist described it. If the BLS went a few percentage points lower on the seasonal adjustment factor, hardly any jobs would have been “created” (ex post facto from the real world). A good explanation of the importance of the seasonal adjustment factor can be found here:

    3) The BLS uses something called the Household Survey to calculate the unemployment rate. This survey has been showing as many as 300,000 jobs a month being created since June of last year. The BLS doesn’t like this survey as a descriptor of job creation, but this doesn’t stop a lot of people from using these numbers to create a rosier picture of the economic landscape.

    To report job gains and losses, the BLS prefers the Establishment Survey, which numbers of course then get seasonally adjusted. This survey has been showing far less job creation than the other survey, so if you want a gloomier picture of the economy you can use these numbers. A lot of observers who do this use the raw numbers when it suits them, perhaps not understanding the implications.

    4) All of these numbers lead to a lot of confusion, but this month the confusion was royally compounded because the BLS recalculated its model assumptions on seasonal adjustments and other factors by incorporating labor market assumptions from the 2010 census, replacing the assumptions used during the past ten years from the 2000 census. Nobody knows outside of the BLS what the census modeling data details are, but now we have at least for this month some major modeling changes that are almost impossible to understand in lay terms.

    5) The people I prefer to read when it comes to interpreting this mass of data are those who start from the raw numbers, look at averages of these numbers over time, and compare one month’s number to the same month in previous years. This way they get a basic if crude seasonal adjustment of their own making, and they can spot important real trends in the labor market. One economist at JP Morgan Chase on Friday who takes this approach said the job creation number was essentially meaningless and an artifact of BLS statistical fiddling. Many of you probably read Karl Denninger’s similar conclusions as well. He also highlighted the decline in the labor participation rate as a serious matter.

    6) Which bring us to the demographic questions. The 2002 study Scotjen referenced is a good starting point. Clearly the retirement of the demographic bulge known as the baby boomers will tend to lower the participation rate. What I understand from these sort of studies, is that ceterus paribus, by 2020 demographics will push the participation rate down to the low 60% range. The problem is that we are already at the low 60s, eight years ahead of schedule. Anecdotally, what I can see from people my age around 60 is that a lot of baby boomers have taken early retirement, often forced upon them.

    The BLS surveys indicate that baby boomers are staying longer in the work force and crowding out opportunities for the younger generations below them. The first statement is somewhat true, but the second is not. What I think has happened since 2005 or so has been significant churn in the labor market for people over 50. My own impression from the financial industry is that there has been a deliberate effort to squeeze out people over 50 because they are much more expensive, and becoming much more so the longer they stay employed. To avoid charges of ageism, corporations dress up these purges as cost-based exercises, which in truth they are, because the only way to cut significant personnel costs is to go after the more expensive employees, which means middle management aged 50 or more.

    If these people who are let go are financially comfortable, they enter early retirement. Most, however, circle back into the labor force as consultants with no benefits, and therefore costing corporations far less. Many just work part-time, which depresses the labor participation rate which is based on full-time employment.

    Now add to this the millions of people in their 20s, 30s, and 40s, who have been let go, and who can’t get any employment, and you have a labor participation rate of 63.7%. Most everyone I know who is age 20-40 used to work in corporations and lost their job, or worked in trades like construction and lost their employment in the housing crash. Some remain unemployed with their benefits now running out. Others scrounge for what part-time work they can get. Of about 30 such people who came to the family Christmas party, I think only 5 work for a large corporation. Others work for local government, or services like dental clinics, one is an EMT, and one works for Wal-Mart. They are getting paid less than $20,000 a year in some cases, even though they are technically full time. My immediate brothers and sisters who are approaching retirement are doing so with very modest savings, and waiting for the day when they get on Medicare and Social Security. If they are lucky to get today’s benefits under these programs, they will have to live watching every penny.

    My own anecdotal experience may not translate to the broader economy, but interestingly, when I talk to people I’ve known over the years, or write something on the internet, I am surprised how frequently I hear the same description of the labor market from others – including people in the U.K, Spain, Australia, and so on.

    Simply put, people are dropping out of full employment faster than demographics would predict because they are forced to by condition of the labor market. This is the discussion we really should be having in the financial markets, just like we should be reviewing the demographic studies from 2002 and earlier that predicted some of this. Moreover, as baby boomers enter retirement, the average person will have $10,000 worth of savings to keep them alive. They will therefore be on government support, at a time when Democrats and Republicans think it important to talk about the need to cut that government support. This is, after all, a basic campaign platform for Mitt Romney, who loves the safety net for poor people, but neglects to mention he wants to shred it, at a time when vast swathes of the labor market are being pushed into poverty.

    When this depression is over, poverty may reach 50% of the population, and it will be concentrated among seniors. This is why I think ultimately this will be described as the Baby Boomer depression. They will bear the brunt of the pain, living their retirement in want, and sometimes facing starvation. They will do so quietly and out of sight, because that is the rugged American way. They may even still vote for Republicans who will continue to undermine the social safety net, but that is because we are all beholden to or victims of our tribal identity, often given to us by our parents and as ingrained as DNA. Fortunately, when it comes to politics, the tribal identities are breaking down as more people abandon the two traditional parties, seeking some alternative.

    Finally, do not pay attention to the claims that baby boomers will have to work into their 70s. It looks so now, when the first wave of baby boomers are entering retirement, and they appear able to work that late in their life. The truth is that after 60 the body slows down, the mental faculties deteriorate, and energy lags. By 70, people will be able to handle only part-time and sedentary work, but the majority of them will be unable to work at all, plagued by various sicknesses. We’ll see this all more clearly five years from now when the first wave of baby boomers gets to 70. By then, you will hear no more talk about working until death. You’ll hear a bit more instead about poverty among the elderly, about hunger and lack of affordable housing, about most people running out of money, and about how some quietly take the route of suicide rather than remain a burden. Sounds depressing? That’s why this will be known as the Baby Boomer depression.

  • They call the baby boomer retirement problem the pig in the pipe. The answer in America is immigration. In five years the US will be paying bonuses to immigrants who come here.

  • …figures, they’ve been increasing since the back half of 2010. I don’t know the demographic profile of your labour market vs. population to be able to tell whether that’s keeping up with population factors (and I’m too damned deep in Stata to check), but it’s at a minimum not sucking as hard as it was.

    In combat one should be very suspicious of painless moral choices. When you are confronted with a seemingly painless moral choice, the odds are that you haven’t looked deeply enough.” ~ Karl Marlantes

  • Merely from population expansion, which in the US means new workers arriving as immigrants, one would expect the total number of available adults for employment to expand steadily. This is what the models try to capture. The current kerfuffle with the models relates in part to disruptions to expected population behavior in 2007 and 2008 as a result of the onset of the financial crisis and depression. Specifically, the number of people out of work exploded in what is described as a black swan event, and then many of them began disappearing altogether from the labor force for whatever reasons. The models weren’t built to capture this, and use of the 2010 census aggravates the problem because this black swan occurrence, or fat tail event, is affecting the statistics.

    I predict in a few years we will see yet another black swan event affecting both population data and labor force data, and that is the assumptions regarding a steady influx of immigrants to keep the population growing and offset the otherwise declining birth rate the US is experiencing with its indigenous population. All reasonable evidence shows that some immigrants are fleeing back to Mexico and the Caribbean, partly because the job opportunities here have dried up (as in construction), and also because the political environment in southern and western states towards immigration has turned pernicious. There may even be a net outflow from immigration. This is certainly going to turn on its head the notion that we need 250,000 jobs a month minimum to keep unemployment steady.

    If we need fewer than this number, it will be easier to understand the decline in the unemployment rate. Complicating this of course is the decline in labor force participation, which is also pushing down the unemployment rate. At current conditions, if the participation rate falls five percentage points more to 58%, unemployment will go to zero. This would help people focus on the uselessness of some of the numbers we are now getting, and the fact that we need to measure unemployment very differently. But then, if you were Barack Obama, wouldn’t you want to show 0% unemployment rather than have BLS switch over to the U6 definition? For anyone who grew up in the 70s, U6 is how the government measured unemployment back then, and at around 11% in 1978, it did in Jimmy Carter’s reelection chances. No president wants to go back to those days.

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