Last week’s employment report for November was almost universally proclaimed as positive and a sign that the economy is improving.  However, the report actually contained a large number of contradictions, as the unemployment survey showed a decline in jobs of 122,000, which conflicts with both the employment survey showing an increase and the decrease of the unemployment rate.  Here is a deeper look at the employment data. 

Major Points Of This Article

Here is a list of the major points discussed: 

• The Establishment survey data conflicts with the Household Survey data
• The Establishment survey showed an increase of 141,000 jobs
• The Household survey shows a decrease of 122,000 jobs
• The Household survey shows a decrease in the employed, but also a decrease in the unemployed, at 229,00 fewer “unemployed” 
• The “Not In The Labor Force, but Want A Job Now” category, not included in the unemployment rate calculation, increased sharply this month, at 230,000

As the above points illustrate, this month’s report is a mix of contradictions. 

These points are discussed below 

The Labor Department Surveys

There are two surveys conducted by the Labor Department that constitute the non-farm payroll report.  

The first is the establishment survey, which surveys professional businesses and breaks down employment by the type of establishment and the sector in which it operates. This survey only counts the number of people currently working. 

The second is the household survey, which is a much smaller survey, but is used to calculate the number of people who are unemployed, as well as estimating the number of people that are employed. 

In addition, the household survey calculates the number of people who are “not in the labor force,” meaning those people who are neither working nor looking for a job. 

To be counted as “unemployed” in the household survey, a person must have actively looked for work in the past four weeks. An unemployed person who has not looked for work is considered to be “not in the labor force.” 

It is the household survey that is used to calculate the “unemployment rate.” 

The establishment survey is used to calculate the “number of jobs.” 

This makes the employment data more complex than  most of the simplified news stories in the mass media.  

Because of the different methodologies and sample sizes, the two surveys can show seemingly different information.

This is what happened this month, which also happened last month. 

November 2012 Employment Data - Contradictions In The Surveys 

The November Household survey showed the following trends this month. 

Source: Bureau of Labor Statistics 

This table shows a clear contradiction in the employment data, as the Establishment survey shows an increase of 146,000 jobs, while the Household survey shows a decline of 122,000. 

The difference in the total number of jobs shown in the two surveys is because the Household survey includes self-employed workers, while the Establishment survey includes only those employed by a business. 

One interpretation might be that many self-employed persons have given up their businesses and become employees, yet such an interpretation isn’t presented in any mass media discussion of jobs. 

Another viewpoint is that both numbers are within the realm of the “margin of error,” particularly the Establishment report, where the current month and the previous month are both preliminary and subject to revision. 

Household Survey Data – First Contradiction – Fewer Jobs, But Lower Unemployment Rate

The Household survey shows a decrease in employment, but also a decrease in the unemployment rate, from October's 7.9% level to 7.7%. 

How can this be? 

The unemployment rate is calculated by taking the number of unemployed persons and dividing it by the labor force number, which is the total of employed and unemployed, as shown below: 

Unemployment Rate = (Unemployed)  / (Employed + Unemployed) 

The unemployment rate calculation completely ignores those persons who are unemployed, but counted in the “Labor Force.” 

Since the Labor Force number declined by 350,00 people in November, the denominator in this calculation is smaller than the denominator used in last month’s calculation. 

The Household Survey Data Second Contradiction – Fewer Jobs, Fewer Unemployed 

The Household survey by itself also continues an apparently contradictory statistics as the number of jobs decreased, while the number of persons unemployed declined.

As can be seen in the previous table the number of persons employed fell by 122,000, while the number of unemployed persons rose by 129,000. 

How could this be?

The reason is that a third category of persons determined by the household survey,   called “Not In The Labor Force” increased sharply, by 542,000. Of these 230,000 are unemployed and want a job, but are not counted as unemployed by the BLS. 

The Not In The Labor Force Increase 

Persons are placed in the “not in the labor force”  are divided into two categories: 

• Do not want a job (for example, retired)
• Want a job 

The “Want a Job” category includes unemployed persons who have not looked for work in the past four weeks. 

Most people would include these long-term unemployed persons as “unemployed,” but the Household survey does not include those persons. 

Within the “Want A Job” category, there are two subcategories:

• Want a job, but have not searched for work in the past year
• Within the “Want A Job” category, there are two subcategories:

A further subcategory is the “Want a job, but have not searched in the past four weeks,” is the subcategory of “Discouraged.” 

These are workers who express the viewpoint that they reason they have stopped looking for a job is that they have given up all hope of finding a job, even though they want one. 

The following table shows the complete data for the November Household survey report. 

As the above table shows, there is an incredibly large increase in the number of persons who are “Not In The Labor Force,” with 542,000 persons. 

Nearly half (42%) of these persons are persons who “want a job,” however. The increase in the “Not In The Labor Force” category cannot be attributed solely to “baby boomers retiring,” as some in the media have suggested.  

The increase of those persons unemployed, but want a job now, was 230,000. 

This increase of the number of persons in the “not in the labor force, but want a job” is larger than both the increase in jobs reported by the Establishment survey and the decrease in the unemployed in the Household survey. 

In other words, the number of persons who have “dropped out” of the employment picture is the single largest number in the November report. 

But you won’t find that number discussed in any of the mass media reports on employment. 

Discouraged Workers 

A subcategory of the Not In Labor Force, but Want A Job Now Is The Discouraged worker category. 

These are people who are unemployed, but have completely given up hope of ever finding a job. 

This category increased in November by 166,000 persons in November, a number greater than any other number in the report; higher than the number of new jobs (146,000), higher than the decrease in unemployed persons (129,000). 

Conclusions

The November jobs reports are filled with conflicting data.  

There are data points to show increased negative environment in the employment world, as well as strong data points to show positive aspects of employment. 

Ironically, this makes the report more powerful politically, instead of less insightful, as persons can pick and choose whatever data points 

However, the simplest data points show positive improvement, while the more detailed analysis shows offsetting negative developments. 

Keep this in mind while you view analysis of various media’s reports on the economy. 

Comments may be emailed to the author, Robert V. Green, at aheadofthecurve@briefing.com