What You Really Need to Know about Employment Data

The widely held outlook about employment is both dismal and bearish.  The popular viewpoint is that there is almost no job creation.  That people lose their jobs and remain on unemployment forever, or until benefits run out.  That there is a small, stagnant, and unchanging pool of job openings.

While the employment situation remains poor, this consensus view, is so exaggerated that it can cloud our ability to understand and to forecast.  This leads everyone to be too pessimistic about the prospects for economic growth and personal consumption.

Here are three important and overlooked facts from recent government reports.

Job Creation

If we could increase job creation by 10%  -- just 10% -- we would make rapid progress on employment.  Payroll employment growth has been just 500K over the last four months, or about 125K per month.  This is only about what is needed to absorb new entrants to the labor force.  What if employment growth was 350K instead?  That is a level that many cite as meaningful for improvement.

An increase to a monthly gain of 350K requires only a 10% growth in job creation because the economy is already generating 2.3 million new jobs every month.  By incorrectly focusing on the net change in jobs, the impression is wrongly created that we have an impossible task.  This is a silly and common mistake, as is the persistence in basing percentage changes on the net change figure.  The monthly change is a very volatile figure and it is small compared to the labor force.  Try this comparison.  If you were talking about a move in GDP from 2% to 3% you would not say that it was a 50% increase.  This is the same thing.  Percentages based upon changes are misleading.

Source:  The  BLS QCEW Report.

Job Availability

The impression is that there are no jobs.  Wrong!  There are about 2.8 million job openings right now.  That number has been pretty constant for months.  Some pundits incorrectly infer that the constant number of openings means that the same jobs are standing empty, perhaps because skills are not matched to the job needs.

This is completely wrong.  While there may be some structural unemployment, you cannot find evidence in the Job Openings and Labor Turnover Report.  (JOLTS).  In fact, the report emphasizes the dynamic nature of changing job openings.  The mistake is that many observers look just at the total of job openings.  The real value of this report is what it shows about the underlying change.

I'll bet you did not know that more people quit their jobs than are fired or laid off.  Almost 2 million people quit last month.

Source:  The BLS JOLTS Report

Unemployment Duration

Mostly we hear stories about long-term unemployment.  To keep perspective, note that as of last month 57% of the unemployed were finding jobs within 26 weeks.  41% within 15 weeks.

These are still poor numbers by historical standards, but not as bad as the general impression.

Source:  The BLS Employment Situation Report

Conclusion

I write a monthly employment preview on the Wednesday before each month's payroll employment report.  I have been among the most bearish of the forecasters, but I try to keep a sense of reality.

My fellow analysts need to join me in looking more deeply into the various employment reports.  The jobs picture has been very poor, but not as bad as widely thought.

Most importantly -- the key takeaway:

It would only take a modest 10% increase in job creation to improve all of the data.

 

 

Comments

[oldprof]

Mad -- The terrible employment story has touched nearly everyone, as I often write. There are about 30 million job losses each year. I know many of these folks from family and personal friends.

So while I do not know you personally, I sympathize. And you are not over the hill! Many people had their most important accomplishments after age 55. Read a little about Harry Truman, for example.

Those whom I know that succeeded made their job search a full time job and stayed optimistic in the face of adversity. It only takes one "yes."

Meanwhile, I agree that the economy is operating far below potential. The gains for corporations have not been matched by gains for workers. That will change, and it is taking a long time.

Thanks for sharing your story, and I hope you will have a happy update for us some day soon.

Jeff

[PigbitinMad]

Well it don't mean jack to me. I am far from the stupidest person on the planet and I have had three interviews in the last year. Why? Because I am 49 years old which is over the hill by today's standards. I wish the advances in medicine would just stop and we can all drop dead at age 40 like we did in the good old days. There is no reason to live past 35 anymore. The economy is deader than a doornail. It would be nice to have 10% job creation, but we do not have it so would good is this fantasy world. I would have a better chance if I decided to rob a bank and hijack a jumbo jet and parachute over the pacific northwest. I heard DB Cooper successfully did it, maybe there is hope for the rest of us.

[dddb1419@wowway.com]

Hello. I read your blog all the time, because it's important to get a balanced view and more facts.

I agree, that many people are not aware of the dynamics involving employment. The total number of new and quits.

My concern, is that we are not producing enough good jobs, where people can support a family and pay taxes.
My view is somewhat tainted by the amount of off shoring by large corporations. I worked for a large multinational. In 2005 the US head count was approximatedly 135,000. In 2009 the US headcount was approximately 105,000. Today I've heard the estimates are 98,000. Can't verify that, because they stopped publishing headcount after 2009. Over these years, the total worldwide headcount increased.

It's the quality of the jobs that I wonder about. Have you ever looked at that? Types of jobs lost, versus types of jobs created?

Thanks for all your good work.

[Paul in KC]

Excellent post jeff. I have really learned a lot form you with regards to this issue, thanks!

[Virtual Data Room]

Amazing post. i never thought we could get a chance to forget about employment data.