Media Ignore Devastating Jobs Report

What if there was a shocking employment statistic but nobody paid any attention?

Measured by the norms in place in 2008 the May Unemployment Rate would have been 9.8%, not the 4.7% reported by the Administration.

The Commerce Department published a depressing monthly jobs report on June 3. Public and private sector employers combined created a pitiful 38,000 jobs during the month of May, less than one-fifth of May’s one-month increase in the working age population.Arc of-participation-june-2016

But the media are obsessed with Donald Trump who showed no interest in the report.  Instead he captivated the “news” for a week by deploying the prestige of the Republican Presidential Campaign in pursuit of a small-minded, personal grudge against a judge who’s presiding over a lawsuit in which he’s a defendant.  Thus the media had little air time for the jobs report’s most discouraging finding, further decline in Labor Force Participation.

The White House, relieved that the expected withering, election year criticism from the Republican campaign wasn’t heard, issued a subdued announcement that emphasized the unemployment rate, which had ticked down to 4.7% from 5% in April.

But it turns out the gradually declining unemployment rate of the Obama era is misleading.  This is the first time since monthly job reports began, eight decades ago, that a falling unemployment rate is bad news. Why? Because it results not from jobless people finding employment but rather from jobless people being reclassified from “unemployed” to “out of the labor force.”

Obama-Era-LFPR-VS-UERAs This chart shows, the gradual decline in the unemployment rate since it peaked at 10% in 2009 coincides with a an unprecedented decline in the labor force participation rate.

  • The Labor Force is the sum of all persons who have jobs plus all who are officially classified as “unemployed.”
  • The labor force participation rate is the percentage of the total civilian, working age population that is counted as in the labor force.
  • The unemployment rate is the percentage of the labor force that is jobless and actively seeking employment.  It’s computed by dividing the number of unemployed by the the total labor force.

Since the unemployment rate began to fall from it’s peak in October 2009 over six million  jobless people have been reclassified from “unemployed” to “out of the labor force.”  In just the month of May another 458,000 jobless men and women were reclassified as “out of the labor force.”

Excluding people from the labor force this way artificially lowers the unemployment rate.  If they were still counted as in the labor force and unemployed, the May Unemployment rate would have been 8.2%

If the labor force participation rate were the same now as it was at the beginning of the recession in 2008 the May Unemployment Rate would have been 9.8%

Thus, the decline in the unemployment rate throughout the Obama era has been due almost entirely to reclassifying jobless workers from “unemployed” to “not in the labor force.”

Reagan-era-LFPR-vs-UERThe next chart shows the first 80 months of recovery after the recession President Reagan inherited in 1981.  While the political-media establishment relentlessly reminds us of their opinion that President Obama inherited the worst recession ever, the data tell a different story.

The unemployment rate spiked higher in 1982 than it did in 2009.  In the early eighties mortgage interest rates soared to above 15% compared to about 5%  during the 2008-09 recession and 3.5% today.  One of the causes of the 1981-82 recession was a monetary crisis that drove inflation as high as 15% compared to around 1% during the past 8 years.

But the recovery from the 1980s recession was spectacularly successful because Reagan’s policies of cutting taxes and reducing the regulatory burden on investors and businesses released the economy to grow and create more jobs.  The result was a much more rapid reduction in the unemployment rate coinciding with a dramatic increase in the labor force participation rate.

It turns out that in every previous post-recession recovery the labor force participation rate was flat or increased.  The current era is the first time participation has declined during a recovery.  Thus, the current era is the first time a declining unemployment rate is not an indicator of a better economy.

At the basic, philosophical level, Ronald Reagan believed in economic liberty while Barack Obama and Hillary Clinton believe in the progressive dream of a powerful government directing and controlling the economy from Washington.  The practical results of these conflicting beliefs are clear and have been demonstrated over and over. Yet, the progressive Left doggedly pursues it’s continuous government expansion project, always promising that more control will make us more prosperous.

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