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The Economist

Worried about your job?
Feb 2nd 2008
From Economist.com

America’s employment figures take a gloomy turn, suggesting a recession is on the way
A RECESSION in America is a worry that the latest data on American employment will do much to deepen. January’s non-farm payroll numbers showed a surprise drop of 17,000, the first decline since August 2003, according to figures released by the Bureau of Labour Statistics on Friday February 1st. Forecasters had hoped for a rise of 80,000, partly owing to good weather during the survey and partly because earlier data had been more upbeat; the figures didn’t oblige.

As usual with American jobs data, not all the numbers pointed in the same direction. Optimists could take heart from an upward revision to December’s payroll numbers and from a small fall (from 5% to 4.9%) in January’s unemployment rate (a figure calculated from a separate survey of households). But pessimists could focus on a slippage in average hours worked, often an early indicator of bad times to come as firms slowly cut back their output.

The data added to the debate about the Federal Reserve’s recent cuts in interest rates of 1.25 percentage points. Some commentators claim that the weak jobs count vindicated the Fed’s pre-emptive move, others saw it as more evidence that the America’s central bank had acted too tardily. The chance of a further half-point cut at the Fed’s next meeting in March increased in response to the news.

The weak payroll number was driven by further falls in employment at construction companies and manufacturers. But while that might have been expected, the big surprise was a 11,000 drop in professional and business-services employment.

One crumb of comfort for those worried about the state of the economy is that the payroll count is notoriously volatile. It is derived from a survey, which questions 160,000 businesses and government entities accounting for a third of total non-farm payrolls. Despite a large sample size the initial payroll count is somewhat sketchy and subject to significant revision. Between 2003 and 2006 the first estimate was revised by an average of 51,000 jobs each month.

These revisions occur because, in January (as with other months), only about 56% of businesses have responded to the survey by the time of its first release. Furthermore, the Bureau of Labour Statistics has to guess at the number of jobs created by new companies—the so called birth-deaths figure.

The unemployment rate is calculated from just 60,000 households, a small fraction of the total of 110m. But it is not subject to the same drastic revisions as it receives over 90% of survey responses by the time of release. A recent study by Congress’s joint economic committee found that the unemployment rate is “the most useful indicator of recession” and the payroll count has “little value” as a guide to economic turning points. If that is so the news is ominous. The study found the unemployment rate increases by 0.12 percentage points in the first three months of recession. A sharp rise in unemployment in December outpaced the improvement in January giving an average rise over the past two months of 0.13 points.

The figures given by the Bush Administration are nothing more than a smoke screen in hopes of salvaging a failed Administration in order to case the blame on someone else. It does not include those whose benefits have expired or those who have simply found looking a futile effort and quit. It does not include the rapidly rising poverty levels and it does not take into account that the jobs that have been created are low paying substandard jobs.

All of Bush's efforts have been show to hide the fact that all he has done is well below the level we consider a dismal failure.