Unemployed: We Give Up!

If you still place any credibility in the Non-Farm Payrolls report that the government releases each month, this month's report should shatter those thoughts.   We don't need any Noble Peace Prize winning economists to do our analysis.  Just look at the headlines:

* Unemployment rate dropped from 9.4% in December to 9.0% in January.
* The economy created 36,000 new jobs in January.

Huh?  According to the U.S. Census Bureau, there are about 20,000 cities in the U.S.   That means that just over 1 new job was created in every city in our country!  This may seem great if you live in Meers, OK, population of 6 people (great burgers and blackberry cobbler)!  Forgive the rest of us if we are not so thrilled.    How do you get a .4% drop in the unemployment rate with such a small number of new jobs?  If a student presented this type of data in a college classroom, he/she would fail the class!  It does not pass the  "red face test".

Yes, we understand the complex nature of these reports, how they are gathered, and on and on.   If someone has to explain a joke, it's not funny.  In the same vein, if someone has to explain all their complex formulas in order to reconcile two reports, it probably is not a very credible report.

Here are a few simple stats about unemployment in this country:

There are an estimated 5 million Americans that have "dropped out" of the workforce and are no longer counted toward unemployment.  They have simply given up looking for work!  According to the government, they are not unemployed, because they don't want a job!  They are not counted in the unemployment numbers.  If you add them to the "officially unemployed" 14.5 million people, that would make almost 20 million Americans without full time jobs, 33% higher than the government number.  That equates to about 1,650 people unemployed for every city, which means it will take a long, long time to get back all those jobs if we continue to add just 1 job per city each month!

Every year, over 1.5 million people enter the workforce looking for jobs after graduating from college.  That does not even include all the people that do not go to college and just start working!  This means that anything less than 125,000 new jobs produced each month results in higher unemployment!  We are at 36,000, nowhere near what we need.

The bottom line is that only large movements in the jobs numbers are credible.  Small moves up or down are likely within the margin for error and mean nothing.  If we see 500,000 new jobs created for 6 straight months, we can say for certain that unemployment is improving.   The chart below shows just how much ground we still need to make up.