'Seasonally Adjusted' Hijinks? The Questionable June Jobs Report
On Friday, News Editor Ed Carson at Investor's Business Daily listed ten reasons why the job market is worse than that morning's Employment Situation Summary from the government's Bureau of Labor Statistics (BLS) indicated. It's a good list, and includes several items which have failed to gain sufficient notice. I'll get to those later.
I have a really important eleventh reason to add which everyone seems to have missed: the report's seasonally adjusted results made it look as if there's at least some momentum for job growth, while the raw numbers reveal that there's really none.
Though it's tempting, and though their methodology is in several ways suspect, I want to be clear that I'm not accusing the folks at BLS of deliberately fudging the numbers -- yet (that is almost certain to happen if fever-swamp leftist Erica Groshen, the Obama administration's nominee to head the Bureau, ever worms her way into that powerful position).
What I am asserting is that the Bureau's continued overemphasis on seasonally adjusted results in an erratic economy with little if any meaningful discussion of the underlying raw (i.e., not seasonally adjusted) data consistently gives the public an incomplete and often erroneous picture of the job market.
Four-plus years into the period of economic abnormality -- which yours truly dubbed the POR (Pelosi-Obama-Reid) Economy in July 2008 when I first saw the train wreck coming -- seasonally adjusted calculations, which try to interpret fluctuating employment patterns based on time of year, are of little value. That's because we haven't seen normal seasonality since early 2008. Instead, the POR Economy, with its awful recession and historically pathetic "recovery," has overwhelmed the influence of seasonal factors. Supposed journalists in the business press, many of whom don't even know that the seasonally adjusted results don't represent what actually happened, lazily relay BLS numbers without any kind of meaningful follow-up.
In some months, the seasonally adjusted figures have understated the strength of the underlying job market. May 2012 was arguably one of them, while June was definitely not:
As seen in May's blue boxes:
- In the private sector, the economy added more jobs in 2012 than it did in both 2011 and 2010 (90,000 and 112,000, respectively), but the barely different seasonally adjusted result for 2012 did not reflect that improvement.
- Overall, the economy added 131,000 more jobs in 2012 compared to 2011 (comparisons to 2010 aren't meaningful because of decennial census hiring), but the 2012 seasonally adjusted result was only 23,000 higher.
That said, Team Obama had no real grounds for complaining about May 2012's seasonally adjusted results. That's because May's seasonally adjusted figures fairly reflect what we would have expected to see if BLS had used May 2004 through 2007, the last four years during which the economy was exhibiting typical seasonality, as their basis.
June (the red boxes) is an entirely different story. This time, in both categories, actual 2012 job growth trailed 2011 by 60,000 or more; but again, the seasonally adjusted results hardly changed.
Combine the above comparisons of June 2012 and 2011 with a look at June 2004 through 2007, and you're left wondering how Friday's seasonally adjusted figures could possibly have come in as high as they did:
This year's seasonally adjusted results are well outside the range of the five years presented in an unwarranted favorable direction. No one would have had any right to complain if the bureau had hung seasonally adjusted goose eggs in each category.
The bottom line is that in the historical context of recent non-recessionary years, June 2012's raw numbers reveal a job market that has essentially ground to a halt -- and that's before we get to the important underappreciated observations Carson made at IBD:
- "The employment-to-population ratio for those aged 25-54 dipped to 75.6% in June, down sharply from 80% in January 2008." That's also lower than it was when the recession officially ended in June 2009. Millions of people in their prime earning years have dropped out of the workforce, and they haven't seen a reason to try to get back in. If they were looking for work, the unemployment rate would more than likely be over 10%.
- "Entrepreneurial activity (is) fading. The number of startup firms has crashed from pre-recession highs, still near levels previously seen in the early 1980s." This development throws into question the validity of BLS's monthly "birth/death" adjustments. In June, it estimated that otherwise undetectable start-ups and very small businesses, net of those which went out of business, added 124,000 jobs. If it turns out that they're only half-right, June's real hiring activity was at a level one would see during a recession.
- "Meanwhile, the number of employees at startups has plunged, with a greater share of new firms with no employees -- one-man shops." In normal recoveries, entrepreneurs are eager to hire people to take advantage of extraordinary opportunities. That's mostly not happening now, for a number of reasons, including mediocre economic growth, the uncertain costs of Obamacare, overbearing overregulation, and perhaps most ominously, "Taxmageddon," which threatens to throw the economy into a full-blown recession next year -- that is, if it isn't already in one now.
Despite all of this, President Obama told an Ohio campaign event audience on Friday that June's results were "a step in the right direction." Labor Secretary Hilda Solis's related press release claimed: "We remain on a path toward stable and durable growth."
No they weren't, and no we aren't.