Defenestrating Thoughts from the Bivouac

It’s been a while since I wrote about unemployment and so I thought I would revisit it. The Bureau of Labor Statistics’ (BLS) April report came out last week and here are the headline numbers:

• Official unemployment rate: 8.9% (Table A-12, Line U-3)
• Real unemployment rate: 15.8% (includes people who want full time jobs but can only find part time jobs, people who want a job but can’t find one and gave up, and people who aren’t counted because their unemployment benefits ran out. Table A-12, Line U-6)

Back in January, I made the following prediction for 2009: “Unemployment tops 10% with real unemployment over 15%”. We’ve only 4 months into 2009 and we’re well past 15% on real unemployment.

Overall, 539,000 jobs were lost in April. However, since 663,000 jobs were originally reported lost in March, a lot of people are seeing this as a good sign: “Unemployment increases are slowing and since unemployment rates are lagging indicators, it means we’re already in a recovery”.

Unfortunately that’s not the case. This month’s numbers include 72,000 new government jobs. Around 60,000 of these are just temporary workers to conduct the 2010 census (source). Plus, as we’ve gone over before, the government can’t create jobs, it just inefficiently redistributes capital. After all, if a government can create lasting jobs without an adverse affect on the overall economy, why is there unemployment anywhere in the world?

Also, the BLS uses a business “birth/death” model to estimate jobs created or lost in small businesses. Logic tells us that these jobs must be contracting; after all small businesses don’t have capital reserves to weather a storm, and a lot of them are mortgage or real estate related which should be contracting as well.

However, the BLS claims that 226,000 small business jobs were created in April! This is very unlikely. Even the BLS methodology admits that this model is suspect:

The most significant potential drawback to this or any model-based approach is that time series modeling assumes a predictable continuation of historical patterns and relationships and therefore is likely to have some difficulty producing reliable estimates at economic turning points or during periods when there are sudden changes in trend. (Source)

Lastly, the previous two months of reports were vastly underreported and had to be revised:

The change in total nonfarm employment for February was revised from -651,000 to -681,000, and the change for March was revised from -663,000 to -699,000. Monthly revisions result from additional sample reports and the monthly recalculation of seasonal factors. (Source)

Given all of this, I don’t see how one could interpret the unemployment numbers as good news. I think my earlier prediction of 10% (U-3) as the high point in 2009 is too optimistic, we’ll probably see that by the end of the summer.