GUEST AUTHOR BLOG: John R. Lott, Jr. Co-author of"Debacle: Obama's War on Jobs and Growth and What We Can Do Now to Regain Our Future."
The recovery has been painfully slow, and Americans naturally look for the silver lining in new economic numbers. Yet, thirty-three months since the "recovery" officially started, and the unemployment rate still hasn’t fallen below 8.3 percent. Unfortunately, the recent “good news” on the drop in initial unemployment insurance claims and job number increases don’t mean what reporters think they mean.
Consider the statistic on initial unemployment insurance claims. It held at 348,000recently, remaining consistently below 400,000 since the beginning of December.
Now, there has been a rule of thumb that jobless claims below that magic number means more jobs. For instance, the Wall Street Journal recently wrote: “Analysts generally believe the economy is adding jobs when jobless claims are consistently below 400,000.”
But forecasting the number of people employed by focusing on new people filing for unemployment insurance is like guessing a pool’s water level by measuring how much flows out but ignoring the rate at which water is being added. It only makes sense if the amount of water flowing into the pool hasn’t changed.
Sadly, that isn’t the case. The Bureau of Labor Statistics (BLS) has estimated the number of new hires each month since December 2000. From that date to when the recent recession that started in December 2007, 5.1 million Americans were hired on average each month. During the recession, that number dropped substantially, with the average falling to 4.4 million hires per month. In December 2008, just before Obama took office, only 4.1 million Americans were hired.
But oddly, hiring has fallen even further during the “recovery” — falling to an average of just 4.0 million per month. The number of hires was still stuck at 4.2 million in January, the last month with published data. Thus, we have experienced the odd phenomenon that new insurance claims have gone hand in with less, not more, hiring.
People are also focusing on the seasonally adjusted net number of jobs. But this statistics is also not as rosy as many portray it. According to the Economist magazine: “a real recovery seems to be developing . . . a third consecutive month with job growth over 200,000 . . .”
The BLS’s seasonal adjustments to the job numbers also make the labor market seem stronger than it actually is. Take the announcement that “seasonally adjusted” payroll employment increased by 243,000 in January. The “unadjusted” or actual raw totals showed a loss of 2.7 million jobs. It’s useful to try accounting for the well-known layoffs that occur at different times of the year, such as right after Christmas, but how you make the adjustment is important. Although the Bureau of Labor Statistics does not disclose its exact adjustment method, the problem is that their adjustments put most weight on recent years.
It is easy to see the huge difference this makes. The average December to January job loss over the preceding three years was 3.1 million. So the most recent 2.7 million drop in jobs would indeed appear as relatively small, and would appear as -- in relative terms -- as the economy improving. But how many jobs appear to be created using seasonal adjustment depends a lot on what time period that is being used in comparison. In the five years before the recession, December to January job losses averaged 2.7 million. If pre-recession monthly changes had been used as the base, the most recent relative jobs “gain” would have disappeared.
The current job “gains” only exist because the job losses a few years ago were so large.
President Obama may not be “manipulate[ing] numbers to get [the] unemployment headline under 9%,” as Rush Limbaugh accuses him of. Nevertheless, the numbers are quite misleading. The already record slow recovery seems destined to pad its lead even further in the history books.
John R. Lott, Jr. is the coauthor with Grover Norquist of the just-released book Debacle: Obama's War on Jobs and Growth and What We Can Do Now to Regain Our Future(John Wiley & Sons, March, 2012).