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Friday, November 2, 2012

The October 2012 Jobs Report

Here is the October 2012 employment situation report from the BLS:

My analysis is at the bottom.

Key Highlights:

- The unemployment rate rose to 7.9%. Non-farm employers added 171,000 new jobs.

- The number of unemployed persons remained flat at 12.3 million.

- The civilian labor force participation rate also increased to 63.8% from 63.6% in September.

- The "not in labor force" count (those who have no job and have stopped looking for work) fell 369,000 from 88,710,000 to 88,341,000.

- The number of persons employed for part-time economic reasons (those that are considered part-time involuntary workers) fell by 269,000 from 8.6 million in September to 8.3 million in October.

- Average hourly earnings dropped by one cent. The 12-month average for hourly earnings have risen at a 1.6% yearly rate.

My Brief Analysis of the October Jobs Report:

This really isn’t good news, but it’s not absolutely terrible. Terrible would have been a net loss in jobs. That wasn’t the case. I do warn, however, that while the media wants to champion the amount of jobs created (ABC, CBS, and NBC news sites have all focused on the amount of jobs created and not the uptick in the unemployment rate as of 11:54am), I do advise attempting to fight through the clouds.

A lot of people are asking, “How did the rate go up when we created that many jobs.” Well, the first thing to know is that we really didn’t create that many new jobs. Again, 171k new jobs is better than -171k new jobs, but there is a context that needs to be applied here. Everyone should know that people who are not employed AND not looking for a job are not counted in the unemployment rate. When the government surveys the country and a person claims they have not actively looked for a job in the last 4 weeks, they’re not counted in the “labor force participation rate.” Why is this significant? Because over the last 6 months, the number of people NOT counted in the overall unemployment rate calculation has increased; many people simply gave up looking for work. That caused a decrease in the overall unemployment rate. In September, we saw a small uptick in overall hiring and the unemployment rate decreased (some people found jobs, employers hired a little, etc.). Because of this perceived “heating” of the labor market, in October, many of those people that gave up looking for work optimistically came back into the work force and are now counted in the unemployment rate. This is why the unemployment rate increased while we created 171k new jobs, and this is why the 171k new job mark isn’t that great.

Basically, there weren’t enough jobs available for the people actively looking for work AND those that came back and started looking for a new job, and since there are more people now being counted, the rate of the total unemployed increased. Additionally, economists generally believe the country needs to produce 150k – 200k new jobs just to keep up with the monthly increase in population. In October, we created 171k new jobs. This means that all the country is doing is with respect to employment stagnating. It’s simply creating enough jobs to limp along, and employers are not actively hiring at a pace that would bring down the unemployment rate. In order to do that, we need to create 350k – 400k new jobs. Currently, at 171k for October, and an average of 157k new jobs created in 2012, we are simply accepting the status quo.

Unfortunately, this realistic, context-hardened message will not get broadcasted by the mainstream media, and they will tout the “strong news” on the unemployment front. I truly hope people don’t believe the spin. While I would never wish anyone the economic hardships of being unemployed, but we have to be realistic, and we cannot accept the sugar-coating of the Obama-loving media. I fear that if Obama is reelected, we will see more stagnant numbers like this as his anti-business policies (Obamacare being the largest) continue to harbor an uncertainty in the business world causing employers to be reluctant to pull the hiring trigger. 

With respect to the election, I doubt this will play into it as the media is already shielding Obama from these numbers. The fact of the matter is: Obama promised change in his first term, and yet the unemployment rate is now higher than when he took office AND less people are in the workforce. He has promised that if we passed his expensive stimulus, we would be closer to 5.3% unemployment, but we are nowhere near that rate. As I said, creating some new jobs is better than losing them, but how long do we have to wait for the situation to actually improve? How much of our tax dollars must be spent as we wait for a "fix?" How much more government planning and intrusion must we endure? As Ronald Reagan said in his 1964 speech titled "A Time for Choosing,"

    - "... we've sought to solve the problems of unemployment through government planning, and the more the plans fail, the more the planners plan."

With respect to unemployment, the fact that the rate has increased, less are working, and we spent a lot of money to get negative results shows that Obama's 1st term has been a failure, and it's time to move in a direction that utilizes less government planning and interference. Unfortunately, I believe this message will not be heard, and we will reelect Obama only to see four more years of the same.

What is the definition of insanity?


  1. Great analysis, LME. Love your insight.

  2. I have to add a few points. :)

    First, I like that you also incorporate the participation rate in your analysis; which truthfully should be just as (if not more) important than the unemployment rate. It often seems to be ignored or forgotten.

    I feel it's also worth mentioning though, that September and August's numbers were revised upwards to 148,000 and 192,000 respectively. A revision that means we added an additional 84,000 more jobs than we previously estimated in those two reports.

    As a minor correction, the participation rate also did increase in September; though you are correct that most of the months preceding it saw a decrease in the rate. And it's also worth noting that we're still rather close to a 10-year low in that participation rate.

    All of that said, I don’t disagree with your ultimate assessment; in that we need to be adding far more jobs/month to truly get back to a strong economy. At the same time though, I’m not all too impressed at this point by either side’s proposals to fix that.