Following the news that the unemployment rate fell in January from 8.5 percent to 8.3 percent, right-wing media have continued to claim that a routine Bureau of Labor Statistics (BLS) adjustment to jobs data, based on the 2010 census, means that "1.2 million people dropped out of the labor force" in January. In fact, experts say that claim is "simply wrong" and reflects a misreading of the BLS report.
After Labor Department Reported January Employment Growth ...
Labor Department: Employment Rose By 243,000 Jobs In January And Unemployment Dropped To 8.3 Percent. From the Bureau of Labor Statistics (BLS):
Total nonfarm payroll employment rose by 243,000 in January, and the unemployment rate decreased to 8.3 percent, the U.S. Bureau of Labor Statistics reported today. Job growth was widespread in the private sector, with large employment gains in professional and business services, leisure and hospitality, and manufacturing. Government employment changed little over the month.
The unemployment rate declined by 0.2 percentage point in January to 8.3 percent; the rate has fallen by 0.8 point since August. [Bureau of Labor Statistics, 2/3/12]
NY Times: Two Million Jobs Added In Past Year. The New York Times' Economix blog reported that "[o]ver the last 12 months, the economy added nearly two million jobs, more than in any similar period since early 2007." [The New York Times, Economix, 2/3/12]
... Financial Blog Zero Hedge Dismissed Employment Growth With Claim That "1.2 Million People Dropped Out Of The Labor Force"
Zero Hedge: "1.2 Million People Dropped Out Of The Labor Force In One Month!" A post on economics and finance blog Zero Hedge claimed that the Bureau of Labor Statistics report estimated that "1.2 million people dropped out of the labor force" in January. From Zero Hedge:
A month ago, we joked when we said that for Obama to get the unemployment rate to negative by election time, all he has to do is to crush the labor force participation rate to about 55%. Looks like the good folks at the BLS heard us: it appears that the people not in the labor force exploded by an unprecedented record 1.2 million. No, that's not a typo: 1.2 million people dropped out of the labor force in one month! So as the labor force increased from 153.9 million to 154.4 million, the non institutional population increased by 242.3 million meaning, those not in the labor force surged from 86.7 million to 87.9 million. Which means that the civilian labor force tumbled to a fresh 30 year low of 63.7% as the BLS is seriously planning on eliminating nearly half of the available labor pool from the unemployment calculation. As for the quality of jobs, as withholding taxes roll over Year over year, it can only mean that the US is replacing high paying FIRE jobs with low paying construction and manufacturing. So much for the improvement. [Zero Hedge, 2/3/12 emphasis in original]
"1.2 Million" Number Comes From A Misreading Of The Jobs Report
Krugman: "We Have Rush Limbaugh, Fox, Etc., Claiming That A Step Down [In Working-Age Population Estimate] Somehow Implies Fake Calculations. Still Not True." In a February 5 blog post, Nobel Prize-winning economist and New York Times columnist Paul Krugman wrote:
First, about that jobs report: all the usual suspects have jumped on the routine BLS population adjustment to claim that the numbers were cooked. The real story here is that the BLS estimates unemployment based on a monthly survey; this tells us what fraction of workers are unemployed. To turn that into a number of unemployed, the BLS estimates total working-age population; but it updates those estimates only once a year. So there's usually a step up or down in the totals each January, signifying nothing.
Back in the Bush years there were a lot of bogus claims of huge job growth reflecting a step up in the population numbers. Now we have Rush Limbaugh, Fox, etc., claiming that a step down somehow implies fake calculations. Still not true. And the thing that makes this so tiring is that they keep trotting out the same old bogosity, no matter how many times it has been refuted. [The New York Times, The Conscience of a Liberal, 2/5/12]
Economic Journalist Barry Ritholtz: "The Fact Is 1 Million People Did Not Drop Out Of The Labor Force In January 2012." In a February 3 post, economic journalist and Washington Post columnist Barry Ritholtz explained that those who are claiming that 1.2 million people dropped out of the labor force in January are misreading the Labor Department's jobs report:
So today following an otherwise pretty darn good jobs report, we get the usual perma-pessimists at Zero Hedge and Rick Santelli over at CNBC proclaiming that the report showed a drop of over 1 million people from the labor force in one month. Of course, as ususal, both Santelli and Zero Hedge have a real reading comprehension problem and completely missed that this million+ people isn't some new January phenomenon, but a result of the BLS using the 2010 census data to have more accurate data. In other words, the changes in the Household Survey to the various measures had taken place over the years prior to 2010, but for simplicity's sake, the BLS incorporates these changes into one month (which they clearly point out).
[T]he fact is 1 million people did not drop out of the labor force in January 2012. [The Big Picture, 2/3/12]
Private Sector Economist Brian Wesbury: Labor Force Participation Rate "Is Not The Negative Silver Bullet That Bearish Analysts Think." In a February 2 report released by First Trust Portfolios, economist Brian Wesbury, a member of the Academic Advisory Council of the Federal Reserve Bank of Chicago, explained that "the [labor force] participation rate is right about where it should be." From First Trust's report:
In his response to the State of the Union Address last week, Indiana Governor Mitch Daniels said that the "percentage of Americans with a job is the lowest in decades." This echoes the focus of many bearish analysts on the labor force participation rate, which is the share of the population that is either working or looking for work. Participation was only 64.1% in 2011, the lowest since 1983.
The bears don't care that in 2011 private payrolls increased 160,000 per month and the unemployment rate fell almost a full percentage point. They don't even care that the labor force actually grew. They argue that the labor force isn't growing fast enough and if it had grown as fast as population growth, the unemployment rate would be significantly higher. But, even though the labor force participation rate is the lowest in a generation, it is not the negative silver bullet that bearish analysts think. Data from 1995 and 2005 suggest the participation rate is right about where it should be. [First Trust Portfolios, 2/2/12]
WSJ: Population Growth Didn't Affect Unemployment Rate. In a post analyzing the jobs report numbers, The Wall Street Journal's Real Time Economics blog explained:
Today's jobs report carries good news on both fronts. The unemployment rate fell, and the employment-population ratio rose. That means the improvement in the labor market is real -- people actually found jobs.
The employment gain wasn't immediately obvious to some observers because of a quirk in this month's report. Every January, the Labor Department readjusts its data to account for changes in the population. The tweaks are especially significant in years like this one that take into account a new decennial census.
This year, the population adjustment makes it look like the employment-population ratio didn't change from December to January. In reality, the ratio improved by 0.3 percentage points. The gains were just masked by the population adjustments.
Here's what happened: According to the Census Bureau, the civilian population grew by 1.5 million people in 2011. But the growth wasn't distributed evenly. Most of the growth came among people 55 and older and, to a lesser degree, by people 16-24 years old. Both groups are less likely to work than people in their mid-20s to early 50s. So the share of the population that's working is actually lower than previously believed. Taking that into account, the employment-population ratio went up. The unemployment rate wasn't affected.
"There was not a big increase in discouraged workers," economist Betsey Stevenson commented on Twitter. "What happened was Census found a bunch of old people we had assumed died." [The Wall Street Journal, 2/3/12]
Time: "The Labor Force Numbers Stayed Essentially The Same." Time reporter Massimo Calabresi wrote:
Some Obama opponents are struggling to find a cloud in the silver lining of January's jobs numbers, which estimated that there was a 243,000-job boost and a big drop in the unemployment rate, from 8.5% to 8.3%, last month. Their biggest gripe focuses on the size of the labor force: As the unemployment rate has trended down over the last few months, anti-Obama commentators have argued that the official percentage for those without jobs is deceptive because the Bureau of Labor Statistics doesn't count those who have stopped looking for work. In Friday's report, they found a sharp increase in that group: More than 1.2 million people joined the non-job seeking pool of working-age Americans last month.
The demographic adjustments had no effect on the unemployment rate, says Mary Bowler, the resident expert in these matters at the BLS. And when it comes to labor force estimates, the steep jump in the number of those not seeking work came entirely from the census adjustment, which added 1.25 million people to that group. If you take out the census adjustment, the labor force numbers stayed essentially the same, as reflected by the labor force participation rate of 63.7%. In other words, the spike in the number of people no longer looking for work is entirely the result of some people at the Labor Department adding numbers to their spread sheets rather than an actual observed shift anywhere in the real economy. [Time, 2/3/12]
Even Conservative American Spectator Admits Claim That "Labor Force Dropped More Than 1.2 Million" Is "Simply Wrong"
American Spectator Blog: "The Claims Of A Big One-Month Drop In Labor Force And Participation Rate Are Simply Wrong." In a February 3 post on the blog of The American Spectator, a conservative publication, Ross Kaminsky wrote that it's "simply not true" that "the participation rate dropped .03 percent and the labor force dropped more than 1.2 million in the past month." From Kaminsky's post:
[ZeroHedge.com analyst and writer Tyler] Durden says that the civilian non-institutional population rose by 1.7 million month-over-month but doesn't mention that almost all of that increase was due to an adjustment by Bureau of Labor Statistics based on the results of the 2010 census, plus smaller annual adjustments.
From the BLS report:
The adjustment increased the estimated size of the civilian noninstitutional population in December by 1,510,000, the civilian labor force by 258,000, employment by 216,000, unemployment by 42,000, and persons not in the labor force by 1,252,000. Although the total unemployment rate was unaffected, the labor force participation rate and the employment-population ratio were each reduced by 0.3 percentage point. This was because the population increase was primarily among persons 55 and older and, to a lesser degree, persons 16 to 24 years of age. Both these age groups have lower levels of labor force participation than the general population.
In other words, the participation rate (employment-population ratio) was reported to have dropped by 0.3%, exactly the amount of participation rate "drop" created by changing the population number used in the calculation (due to updated census data.) Without this once-a-decade adjustment, the change in participation rate would have been reported as...wait for it...zero.
I don't want to overstate the significance of Durden's oversight, which conservative voices around the media and the web are also making, namely the idea that the participation rate dropped 0.3 percent and the labor force dropped more than 1.2 million in the past month. Those things are simply not true no matter how loudly people scream "conspiracy" and "propaganda." (Having been trading financial markets for about 25 years, I've heard these same accusations about economic data being manipulated to help the incumbent president -- whether Democrat or Republican -- so many times, they just bore me now.)
And while the actual participation rate might in fact be this new lower number, that would also mean that prior numbers were lower. In other words, the top-line change -- caused almost entirely by using new census population numbers -- is an artifact of the new census data, but few people have read to the end of the BLS report to get that important piece of information.
Furthermore, there are cyclical reasons that the participation rate shouldn't be as high now as it was a few years ago in a different part of the economic cycle, as economist Brian Wesbury (no liberal, he) explains.
Look, I don't like writing anything that is likely to benefit Barack Obama or his supporters. But the facts are the facts, and the claims of a big one-month drop in labor force and participation rate are simply wrong. If our side is going to call certain data "propaganda," the least we can do is make sure we understand the data. [The American Spectator, 2/3/12, emphasis added]
Yet Right-Wing Media Still Hyped Zero Hedge's Claim That "1.2 Million" Left The Labor Force
Fox's Lott Claims Figure Is Evidence Of "More And More Americans ... Giv[ing] Up Looking For Work." In a February 3 column on FoxNews.com, contributor John Lott claimed:
Three years after Obama became president, even the official unemployment rate still remains high. The newly released 8.3 percent unemployment rate is still a half a percentage point higher than when he took office.
But that still might be looking at the bright side. If we include those who have given up looking for work and those who could only find part time work, the unemployment rate stands at almost an entire percentage point higher than when Obama entered office.
In January 2009, 11.6 million Americans were out of work and 23 percent of them had been unemployed for more than six months.
Today there are 12.8 million unemployed and 43 percent have been out of a job for more than six months. The average length of unemployment has increased dramatically since even the recovery started. Back in June 2009, "only" 29 percent of the unemployed had been unemployed longer than six months.
The number of unemployed Americans last month fell by 339,000, the fifth largest drop since January 2009. But there was an even much more shockingly large number -- almost 1.2 million additional Americans were classified in January as not being in the labor force (see figure here). Unfortunately, that has been the consistent story that has made this "recovery" unique as more and more Americans have just given up looking for work.
Fox Nation linked to Lott's column with the following graphic:
Wash. Times: "This Figure Represents Those Who Out Of Sheer Frustration ... Have Dropped Out Of" The Labor Force. In a February 3 editorial, The Washington Times claimed that the Bureau of Labor Statistics "dropped 1.2 million from the calculated workforce" in January. From the editorial:
The White House hyped the news Friday that January payrolls had risen by 243,000. The hitch is the Bureau of Labor Statistics (BLS) also dropped 1.2 million from the calculated workforce. Somehow this net loss of a million workers in a single month was transformed into an improvement in the unemployment rate. As the old saying goes, figures don't lie, but liars can figure.
"Job growth was widespread," the BLS reported, but most Americans sense that something isn't quite right with the numbers. The most important change was the deep decline in the workforce. While the overall population jumped an 1.6 million in January, the workforce declined a record-setting 1.2 million. This figure represents those who out of sheer frustration or for other reasons have dropped out of what the government defines as the active labor pool. They are worse than simply unemployed; they are both jobless and hopeless. [The Washington Times, 2/3/12]
Doocy: "There's A Million Less People Than We Thought Working ... Some Have Said, That's Kind Of Fishy." On the February 6 broadcast of Fox News' Fox & Friends, the co-hosts discussed the unemployment rate and jobs report. Co-host Steve Doocy claimed, "There was an adjustment last week ... suddenly, what, over a million people disappeared?" Later, Doocy said, "You know, they take the census every 10 years, and they figured, OK, there's a million less people than we thought working, which some have said, that's kind of fishy." [Fox News, Fox & Friends, 2/6/12]