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Unemployment and Government Jobs

Friday, September 4, 2009, 10:39 AM

Since it's such big news, I will report on the latest unemployment report by the BLS, but I dislike spending too much time on it because I consider it one of the weaker or murkier sources of data, at least on a monthly basis.

Often it conflicts heavily with other private or more reliable sources of data, which have been collectively telling a grimmer story than today's headline news release of an additional loss of 217,000 jobs for August 2009.

Regardless, here's the news, with my analysis:

Unemployment rate jumps to 26-year high of 9.7%

By Rex Nutting

WASHINGTON (MarketWatch) - The U.S. unemployment rate jumped to a 26-year high of 9.7% in August as nonfarm payrolls fell by 216,000, the 20th consecutive monthly decline, the Labor Department estimated Friday.

Of course, 9.7% would be dream rate to teenagers who are now suffering their own quiet depression with a 25% unemployment rate, and for blacks and Hispanics, who are pulling up an uncomfortable second and third behind the teens.

U.S. payrolls have dropped by 6.9 million to 131.2 million since the recession began in December 2007, the government data showed. Unemployment has increased by 7.4 million during the recession to 14.9 million.

As you probably know, unemployment is measured in two ways:  the percentage rate is derived from the household data, while the actual number of jobs gained or lost is sampled from 'establishments,' meaning businesses.  In the paragraph above, we might note that there is now a 500,000 job difference (7.4 - 6.9) between the number of jobs reported lost by households vs. establishments.

The 216,000 decline in payrolls was close to market expectations of a 233,000 drop, but the unemployment rate rose higher than the 9.5% level expected. The unemployment rate was 9.4% in July.

Payroll losses have moderated in most industries in the past two months. Payrolls declined an upwardly revised 276,000 in July. In June and July, payroll losses were revised up by 49,000.

Oops.  A 9.5% rate expected, but 9.7% hit.  That's a miss.  Also note the large downward revisions, totaling nearly 50k jobs for June and July.   Downward revisions are a sign of weakness.

Government Jobs

By way of commentary, we might also note in this report that government jobs are now more numerous than the entire goods-producing sector (construction + manufacturing combined), larger than the retail trade, larger than business & professional, larger than education and health services and even leisure and hospitality.

In shorthand, government jobs are now more numerous than every major subcategory and are only outnumbered by "Service-providing" as a super-category. 

There are now only 4.8 private sector workers for every government worker:

And this ratio may be even more unfavorable, because the number of private contractors working on government projects, which has grown magnificently over the past decades, is not included in the "government employee" category.

Sooner or later, we are going to have to come to grips with this enormous imbalance between the producers and the distributors of wealth.

How have we managed to even support this ratio of government-to-private sector workers?

Easy.  We've borrowed their salaries from the future:

When you don't really have to pay for employees, but can effortlessly borrow their salaries with the aid of your friendly thin-air banker, then it's quite easy to add them.  If government debt had been held constant (taxes would have to have been raised to cover the costs), you can bet your bottom dollar that the number of government employees would be a lot lower than it currently is.

As always, I am not making any value judgments about these jobs, only pointing out that I think there is a serious misalignment between how many we can afford and how many we'd like to be able to afford.

My concern here is that we're piling up debts that could ruin the country without having a decent conversation over whether 4.8 to 1 is a sustainable ratio or not.  Perhaps we should have that dialogue.

The Birth-Death Model

Of course, as you should know by now, the 217,000 lost jobs were mitigated by the addition of 118,000 jobs by the "birth-death" model.  [Note: They cannot be simply summed, because the 217k is seasonally adjusted, while the B-D numbers are tossed into the "not-seasonally-adjusted" bucket, which is then adjusted…but the direction and magnitude of the impact is clear enough].

My intellectual concerns about this model stem from the fact that it is supposed to account for both business births and deaths (that are largely otherwise invisible to the job counters), but the model only ever seems to be able to conclude that business births are outnumbering deaths.

This is not really surprising, since the model is drawing from an insurance database that seriously lags the current realities and therefore covers a period of growth, not contraction.  That an extrapolation from old data continues to show a persistent upside bias is not really all that surprising to me.  What is surprising is that extrapolations from this data set are being used today, apparently without any modifications to correct for what is happening these days.

But back to the data, the birth-death addition of 118,000 jobs is a 28% increase over the number of modeled jobs added last August.

If anyone can provide evidence that would support the economy being 28% more supportive to new business creation this year than last year, I would love to see the data.

However, as it stands, the credit and retail environment right now are about as hostile to new businesses as any in decades, and it seems a stretch to imagine that business births continue to outpace business deaths by a healthy margin.

As always, collect multiple views drawn from numerous data sources, and then trust yourself.

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13 Comments

JAG's picture
JAG
Status: Diamond Member (Offline)
Joined: Oct 26 2008
Posts: 2492
Re: Unemployment and Government Jobs

Dr. M,

It must be so tiring for you to constantly fight this battle against dishonest propaganda-like economic statistics. I'm afraid I haven't shown you the proper respect and admiration that you deserve for this monumental effort. I sincerely apologize to you for this. In this hectic and confusing times, you have been a consistent beacon of the truth for all of us here.

Thank You for all that you do, day in and day out.

All the Best,

Jeff

win's picture
win
Status: Member (Offline)
Joined: Aug 7 2009
Posts: 1
Re: Unemployment and Government Jobs

Here is a view from "the cheap seats".   My employer cut several positions as well as cut salaries & benefits for those who remained.  In a meeting this week:  more cuts are on the way in an effort to improve cash flow as overnight lending & short term lending are very expensive.   Fed will loan at almost 0- but financial instiutions put the cash back with the FED at interest.  Money is NOT flowing to business- small business in particular.  So how in the WORLD can the birth/death stats be even close to reality in today's business climate?     CM's questioning of the validity of this statistical adjustment seems right on target to me.

Davos's picture
Davos
Status: Diamond Member (Offline)
Joined: Sep 17 2008
Posts: 3620
Re: Unemployment and Government Jobs
win wrote:

Here is a view from "the cheap seats".   My employer cut several positions as well as cut salaries & benefits for those who remained.  In a meeting this week:  more cuts are on the way in an effort to improve cash flow as overnight lending & short term lending are very expensive.   Fed will loan at almost 0- but financial instiutions put the cash back with the FED at interest.  Money is NOT flowing to business- small business in particular.  So how in the WORLD can the birth/death stats be even close to reality in today's business climate?     CM's questioning of the validity of this statistical adjustment seems right on target to me.

Good read! Thanks.

Also, recently I'd point out that I heard a John Willams interview (he I'm sure you know is with Shadow Statistics) he pointed out that the Birth Death Model is predicated on data that is 12 month lagging.

IMHO we should can the entire BLS and BEA and pay Williams for his statistics. Who needs Enron math?

Ken C's picture
Ken C
Status: Platinum Member (Offline)
Joined: Feb 13 2009
Posts: 753
Re: Unemployment and Government Jobs
Davos wrote:

 

IMHO we should can the entire BLS and BEA and pay Williams for his statistics. Who needs Enron math?

The only problem with that strategy is that the gov would have to publish better statistics and you know we can't have that.Frown

Tserendash's picture
Tserendash
Status: Silver Member (Offline)
Joined: Mar 5 2009
Posts: 178
Re: Unemployment and Government Jobs

Collapse will come!  Is it time to start making up the list of how our second republic should be structured?  Of course truly honest accountability is high on the list. 

idoctor's picture
idoctor
Status: Diamond Member (Offline)
Joined: Oct 4 2008
Posts: 1731
Re: Unemployment and Government Jobs

You really have to know this game is up in the not too distant future. They are doubling down basically with the same policies that got us into this mess.......all is not bad IMHO since it gives me more valuable time to prepare for the inevitable.

Most people will stay with faith & hope while they go down with the big old ship.

Davos's picture
Davos
Status: Diamond Member (Offline)
Joined: Sep 17 2008
Posts: 3620
Re: Unemployment and Government Jobs
idoctor wrote:

You really have to know this game is up in the not too distant future. They are doubling down basically with the same policies that got us into this mess.......all is not bad IMHO since it gives me more valuable time to prepare for the inevitable.

Most people will stay with faith & hope while they go down with the big old ship.

+1!

 

jasonpaige's picture
jasonpaige
Status: Member (Offline)
Joined: Sep 7 2008
Posts: 7
Re: Unemployment and Government Jobs

I went to the bank today to make a deposit, and I had this sick feeling that I should withdraw more cash (for emergencies).  I keep a stash out of the bank, as any good doom and gloomer (I prefer "realist") does, but today I got that "feeling". 

Sometimes I sit at stoplights, and I see people driving by, talking on their cell phones, driving their Toyotas, and BMW's, and I have a little "flash forward".  I see dollar signs above their cars, and their houses, just guessing how in debt they are.  Am I crazy, or are we headed for some seriously tough days really soon?

Hey, I just realized I'm coming up on my one year anniversary of discovering Chris Martenson, and really having a clue of what is going on, and what will go on.  Thanks Chris, I appreciate your work, and you've definitely given me the foundation to make decisions for myself and my family that I trust.  BTW, I'm a crack audio producer, so if you ever need any help with the sound track on your videos, just let me know.

Stream of consciousness ending in 3.....2....1.....

ckessel's picture
ckessel
Status: Martenson Brigade Member (Offline)
Joined: Nov 12 2008
Posts: 465
Re: Unemployment and Government Jobs

Hi Chris and thanks for another breath of straight talk and fresh air!

A bit more information to add to your data set here:

In a California County with a population of 55 thousand we had the following developments this week.

1) The largest private employer (Sierra Pacific Industries which is a logging company) shut its doors indefinately and laid off over 150 employees. Add an additional 160 jobs directly tied to that industry such as the private loggers and truckers and you have a total of over 310 jobs gone. And no one is counting all of the service sector businesses that benefit from those workers. I roughly estimate over $12,000,000/yr vanishes from our community.

2) The County Government announced today it will move ahead with a new "badly needed" Law and Justice Center which will place a $250,000,000 claim on the future human labor of this community. Of course it is noted that we can expect to receive grants from the State and Fed to cover much of the cost of this project, "Maybe even some stimulus money".

Think of all the new jobs being created by this government sponsored construction project!  Here is a real kicker for you.  The County has 1.5 million of the funds needed to purchase the 4.2 million property. To consumate the deal the County is going to float a loan backed by the faith and credit of the taxpayers and the "Court System" (which is really owned by the state) has offered to cover the monthly payments on the debt of 2.7 million by using it's revenue stream from fines and traffic tickets!!!!    What are the chances we will see another tightening of the screws on citations in the upcoming years to cover those payments???

Sorry to say,  all of those CC DVDs I passed out to the County Supervisors last year seems to have missed the mark!!

Life is sweet provided you don't weaken!  I'm going to take the rest of the day off!  Have a great weekend.

Coop

willid3's picture
willid3
Status: Member (Offline)
Joined: Jul 31 2009
Posts: 6
Re: Unemployment and Government Jobs

well considering how many jobs have been exported, and that has been going for several years now, i am not surprised. the b/d adjustment seems to be just fudge facter, and how little private industry has done in job creation in almost a decade. i wonder if they try to validate these numbers using say tax records?  

natew's picture
natew
Status: Member (Offline)
Joined: Dec 26 2008
Posts: 9
Re: Unemployment and Government Jobs

Thanks for all the great info!  Just one quick question...

What all is comprised in that government employees figure?  Teachers? Police/Fire fighters?  Or is it mostly all the 3 letter agencies and regulatory agencies?  I have used the 6 to 1 ratio, that I read before to enlighten people, but I've never really been able to back it up with what it includes... Any help would be MUCH appreciated.

4.8 to 1... that already goes against the historic 1.2 eroi that a human produces.

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