Unemployment Rate Real Story- People Stopped Looking for Work

March 8, 2013

The reporter on NPR breathlessly gushed  about how the unemployment rate fell to 7.7 percent.

What a great story!

They then cut to someone who attibuted the fall in the unemployment rate to ‘jobs picking up in construction.’

(Around 48,000 according to BLS)

Don’t get me wrong, I agree that a gain of 236,000 jobs in February is a significant improvement over the paltry 119,000 reported in January.

But it is nowhere  near the 363,000 needed each month to bring our official unemployment rate back down into the neighborhood of 6 percent.

What the reporters are not explaining to you is that in February,  the adult population grew buy 165,000, yet the labor force actually decreased 130,0000 as 295,000 additional adults chose not to look for work.

Over a  hundred thousand more adults fell out of the labor force in February than found jobs!

LABOR FORCE PARTICIPATION RATE FEB 2013

Jobs haven't even begun to recover. This is the real unemployment story.

Jobs haven’t even begun to recover. This is the real unemployment story.

What does this mean?

It means that the real unemployment rate U-6 is 14.3 %

14.3 percent is the real number for total unemployed, plus all persons marginally attached to the labor force, plus total employed part time for economic reasons, as a percent of the civilian labor force plus all persons marginally attached to the labor force. Source- Bureau of Labor Statistics.

So that 7.7 % figure the breathless news reporters are giving you is wrong.

The reporters are understating by about 50% the actual unemployment rate.

7.7 percent is 54 percent of 14.2 percent.

46% is a fairly large margin of error or “understatement.”

There is hope.

There are jobs for people with skills in advanced manufacturing.

Here is a link to a quick video where I show a list of job openings posted at Cuyahoga Community College Advanced Workforce Center.

If you can take two semesters of skills training at a local community college, you could find yourself working in advanced manufacturing by the second semester.

Labor Participation Rate Graph

Professor Peter Morici of University of Maryland contributed some sensemaking to this post.


February 2013 ISM PMI Increases to 54.2

March 1, 2013

In the words of PMPA’s economics advisor, Dr. Ken Mayland, “The factory sector wants to grow.  Orders were better (57.8, up 4.5 points), production was better (57.6, up 4.0 points), and the order backlog was better (55.5, up 7.5 points).  The U.S. economy may be the best performing of the major economies of the world.”

Graph via calculated risk blog

Graph via calculated risk blog

The Institute for Supply Management (ISM) reported that its summary Purchasing Managers’ Index (PMI) increased 1.1 points, for a February reading of 54.2.  According to the ISM, a reading above 50 would typically be associated with an expansion of the manufacturing sector. Furthermore, based on the ISM’s estimates, if the current reading of 54.2 were sustained, it would tend to be consistent with 3.7% real GDP growth (annualized).

Our inferences:

  • Manufacturing remains a growing sector of the U.S. and world economies
  • The ISM employment index was weakest of any of the ISM indicators tracked,  at 52.6%, down 1.4% from 54.0%.
  • With Affordable Health Care Act clearly on the minds of employers, adding employees has to be the least preferred outcome until we can see costs more clearly.
  • The Prices sub-index rose 5 points to 61.5. Can price increases and inflation be all that far away?

One respondent in the Miscellaneous Manufacturing sector is quoted by ISM, “Starting to pick up after a slower than normal year-end.”

That is certainly in agreement with PMPA’s Business Trends Report for January 2013 which showed a record rise of 41% over December 2012 sales levels, which were quite low.

ISM February 2013

Calculated Risk Blog


PMPA Business Trends 2012 Review and Summary

January 23, 2013

The PMPA Business Trends Report 2012 Year End Review and Summary is completed and posted on our website here

Despite a great start for sales in the industry at the beginning of the year, the special causes of the uncertainty leading up to the election and the ‘Fiscal Cliff’ took the wind out of our sails sales, resulting in 2012 sales index barely equalling that of 2011.

Bummer dude. Too bad about that election and fiscal cliff stuff...

Bummer dude. Too bad about that election and fiscal cliff stuff…

For a host of specifics, and our outlook for important precision machining markets in 2013, please see our report.


December ISM Manufacturing Report- Mixed Message

January 2, 2013

The December ISM Manufacturing Report is out, and the headline story is good news.

But the full report is a bit of a mixed bag for our industry.

Manufacturing is back in expansion mode as the Purchasing Manager’s Index, “‘The PMI™,’ registered 50.7 percent, an increase of 1.2 percentage points from November’s reading of 49.5 percent, indicating expansion in manufacturing for only the third time in the last seven months. This month’s PMI™ reading moved manufacturing off its low point for 2012 in November.” – ISM Report Dec 2012

ISMDec2012

A closer reading however notes that “The nine industries reporting contraction in December — listed in order — are: Nonmetallic Mineral Products; Chemical Products; Miscellaneous Manufacturing; Plastics & Rubber Products; Fabricated Metal Products; Transportation Equipment; Machinery; Electrical Equipment, Appliances & Components; and Apparel, Leather & Allied Products.”ISM Report Dec 2012

Precision machining is an industry of Fabricated Metal Products.  Four of our most important market segments were also in decline in December:  Transportation Equipment; Machinery; Electrical Equipment, Appliances & Components. The market we see is not as rosy as the headline.

In addition, the New Orders component of the survey, at 50.3, went unchanged.  This suggests that new orders, the source of our business’s future production, was virtually unchanged in December. The backlog of orders component,  at 48.5,indicates a small contraction of the orders book.

Graph courtesy of Calculated Risk Blog


Unemployment Today is Structural Unless Cyclical Means

December 10, 2012

The reason everyone wants to describe our current unemployment situation as cyclical just might be because ‘cyclical unemployment’ is cause agnostic. Cyclical unemployment is defined as just “the deviation of unemployment from its natural rate. Link

Since it is just a variation, we need not look too hard for causes, it will go away.

Sandra Pianalta, Chairman of the Cleveland Fed,  and a member of the FOMC, is on record as saying that unemployment is cyclical:

Pianalto: I still believe that our current high unemployment is a cyclical problem and not a structural one. There’s been a longstanding relationship between the amount of growth in the economy and the improvement that it translates into in terms of job creation. We’ve had a very weak recovery that hasn’t created a lot of jobs. So the slow pace of this recovery is causing that unemployment rate to move down more slowly than we’d like.

I’m reassured that this issue is cyclical and not structural when I look at job openings. Prior to the recession, there were two individuals looking for every job that was open, so it was a 2-for-1 ratio. During this recession, that number has jumped to four people looking for every one job opening. So we just have a very slow pace of job openings, which, again, is cyclical, in my thinking.  Link

Structural unemployment is defined as a mismatch between skills demanded and labour available

Structural unemployment means the folks you can hire can't do what you need done.

Structural unemployment means the folks you can hire can’t do what you need done.

“Unemployment caused by a mismatch between workers’ skills and the skills needed for available jobs. Structural unemployment essentially occurs because resources, especially labor, are configured (trained) for a given technology but the economy demands goods and services using another technology. Employers seek workers who have one type of skill and workers seeking employment have a different type of skill. This mismatch in skills, largely the result of technological progress, creates unemployment of the structural variety.” Link.

Those of us trying to hire people with skills to operate our CNC equipment, people who can do math- trig, offsets, enter programs into controls, read vernier calipers- we know its a structural problem. We see and hear it in each interview.

Those college grads with all those student loans needing to be repaid can’t do these things.

Sure looks like “Employers seek workers who have one type of skill and workers seeking employment have a different type of skill” to me.

But I have a very smart (and modest) friend who suggested that I might be mistaken.

“Perhaps it is cyclical, ” he explained, “if the ‘cycle’ you’re referring to is 40 years of failure in public education, undermining the family as a social building block, the complete decoupling of executive compensation from everybody else, an eroding sense of the “public good”, the reckless expansion of easy credit, extremist positions on the social safety net, even more extreme positions on law, order, and incarceration (including drug policy) and, in some pockets, the fostering of contempt for empericism, all while the rest of the world gets leaner, smarter, and richer.”

Maybe he’s right. I’ll admit that our unemployment  today is cyclical,  if cyclical means 40 years of failure in public education, undermining the family as a social building block, and extremist positions on the social safety net that keep job seekers at home instead of job seeking and the host of other factors  he mentioned. These are the reasons our precision machine shops and advanced manufacturing companies can’t seem to find the skilled labor for which we have openings.

So  what’ll it be? Structural or Cyclical?

What'll it be?

What’ll it be?

Today’s unemployment problem is structural, unless you want to accept a 40 year cycle of failure in public education and culture.

Bartender

Diesel mechanics photo


Why the Unemployment Rate Falling Is Not Good News

December 7, 2012

“Convincing millions of Americans they don’t want a job or compelling desperate workers to settle for part time work has been the Obama Administration’s most effective jobs program.”  – Peter Morici

Adding to the deficit to pay for it is yet another issue.

The economy added 146,000 jobs in November, up a bit from 138, 000 in October. The Dept. of Labor reported that Unemployment fell to 7.7 percent, largely because 542,000 additional adults chose not to look for work.

In the weakest recovery since the Great Depression, most of the reduction in unemployment from its 10.0 percent peak in October 2009 has been accomplished through a significant drop in the percentage of adults working or looking for work.

Were adult labor-force participation the same today, the unemployment rate would be 9.7 percent.

Hooray! Not really.

Hooray! Not really This is only a small part of the real unemployment picture.

Adding more than 8 million part time workers who can’t find full time work, and discouraged workers no longer looking for work, the unemployment rate becomes 14.4 percent. It rose above 14 percent in the wake of the financial crisis and remains stuck there.

Underemployment is even more onerous.

Underemployment is even more onerous.

Gallup tracks underemployment monthly as well, and the official Labor Dept. figures  seem to be about three percentage points below those of Gallup.

Hmmmm?

Graphs courtesy of Policymic

Peter Morici is an economist and professor at the Smith School of Business, University of Maryland School, and a widely published columnist.


The Future of Your Business in 8 Bullet Points

October 29, 2012

I know some folks who have an uncanny ability to predict the future. They are not psychic, indeed, they are the kind of people that discount that sort of thing out of hand.

The secret of these folks is that as critical thinkers, they are able to recognize the assumptions of the present state, AND MAKE INFERENCES from the data that they have.

They make these inferences by not being slavishly tied to the present assumptions.

12 page pdf about your impending future. Scarier than Stephen King.

The folks at the National Association of Manufacturers (PMPA is a member) have issued a new report fiscal shock: America’s Economic Crisis Executive Summary.

8 bullets that tell the future your business is facing:

  • Absent legislative action, large spending cuts and large tax increases will hit the economy at the same time, causing a total fiscal contraction of $500 billion, or about 3.2 percent of GDP.
  • Washington’s failure to address the pending fiscal cliff is already having an impact, cutting 0.6 percentage points from GDP growth for 2012.
  • The worst could be ahead. If the fiscal contraction happens, the economy will almost certainly experience a recession in 2013 and significantly slower growth through 2014.
  • From 2012 to 2015, the economy will lose 12.8 percent of the average annual real GDP it could have attained with moderate growth, sapping critical resources from all economic sectors.
  • Job losses will be dramatic. By 2014, the fiscal contraction will result in almost 6 million jobs lost, and the unemployment rate could reach more than 11 percent. (U-3 unemployment U-6? Too scary to contemplate!)
  • Households will take a big hit. Real personal disposable income will drop almost 10 percent by 2015.Reduced U.S. Standard of Living
  • Manufacturers of consumer goods and defense contractors likely will see large and durable contractions in their industries.
  • It will take most of the decade for economic activity and employment levels to recover from the fiscal shock. Another recession could deal a substantial blow to long-term economic potential, permanently reducing living standards in the United States.

These eight points document why manufacturers are worried about slowing economic growth.

You know what to do…

If you think that Hurricane Sandy is the perfect storm, wait until you see what happens when sequestration cuts, other federal spending cuts, and layoffs  hit at the same time that U.S. taxpayers- investors, businesses, employees get hit by a sudden increase in tax liability.

Get the report.

Seatbelt