Rathbun: 7.8% — Really?Written by Gary Rathbun | | GaryRathbun@PrivateWealthConsultants.com
Earlier this year I tried to bet 1370 WSPD’s Brian Wilson a dollar that the unemployment rate would be below 8 percent by November because no president has been re-elected with unemployment over 8 percent. Brian, being the student he is of politics and economics, wouldn’t take the bet.
This past week, the government came out with the unemployment rate for the month of September. The number surprised most people, coming in at 7.8 percent compared to 8.1 percent for August. I should be a dollar richer now.
Now, I don’t normally lean very strongly toward conspiracy theories because I’m not sure you could get two bureaucrats to agree that it is daylight outside, let alone agree to cook a large set of numbers with many people involved and publish the results. That being said, there is something fishy about these numbers. Even by the most liberal standards of the mathematically inept, the sum simply doesn’t add up.
Let’s take a look at some of the data surrounding the conclusion.
- A survey of 50,000 households is used to determine the rate.
- 78.8 percent of the 2.184 million household jobs created this year happened in the months of January and September.
- September’s number was 873,000, of which exactly 66 percent were part-time for “economic reasons.”
- The sampling error for the above number is plus or minus 280,000 jobs.
- Households in inner cities are purposely not surveyed due to higher minority unemployment.
- The Obama administration announced that 114,000 jobs were created last month.
- The U-6 number was unchanged at 14.7 percent.
- The sampling error for U-6 is plus or minus 100,000 jobs.
- The Bureau of Labor Statistics (BLS) had new software installed in August to seasonally adjust the numbers.
- The labor force shrank by 2.648 million year over year in September.
- The age 20-24 sector had a September positive increase of 310,000, seasonally adjusted to 380,000, for the first time in history. Until 2012, this has always been a negative number.
Does all of this add up to a conspiracy to get President Obama re-elected? I don’t know. I doubt it. But it does add up to a series of changes in how the numbers are put together that make it possible to skew the results.
They just don’t add up. The BLS publishes the numbers used to determine the U-3, and yet they must be using different numbers. The size of the labor force grew by 418,000 in September. In 2009 the labor force was about 160 million people, today it is about 155 million. As Mitt Romney stated, “If the same share of people were participating in the workforce today as on the day the president got elected, our unemployment rate would be around 11 percent.”
If you start to count all of the people who are “permanently discouraged workers” we reach a rate of close to 24 percent!
So to sum up, the U-3 number is 7.8 percent, the U-6 number is 14.7 percent and the total number of all of the above plus the permanently discouraged is 24 percent.
Recently, it also came out that a couple of the economists and the BLS both contributed to President Obama. I don’t give this any thought because 1) they can contribute to whomever they want, 2) it would take a lot more than two people to manipulate all of this data and 3) I am sure there are economists out there who probably contributed to the Romney campaign as well.
Finally, why am I talking about all of this and what does it have to do with how you invest your money and plan for the future? The most important aspect of this is to not let numbers and headlines such as these influence your decisions without digging deeper into the reports and the numbers. I know that not many people are math geeks but it doesn’t take any more math than balancing your checkbook to see through these numbers and know that they don’t add up.
Look at how the market reacted when the news hit. First it was up significantly and then it came back down as the day went on. First it was a reaction to the headline and then the action based on the reality, (or the un-reality) of the numbers. Most importantly, look around you and see what the economy is doing and form your judgments from there.
Gary L. Rathbun is the president and CEO of Private Wealth Consultants, LTD. He can be heard every day on 1370 WSPD at 4:06 p.m. on “After the Bell with Brian Wilson and the Afternoon Drive” and every Wednesday and Thursday evening at 6 throughout Northern Ohio on “Eye on Your Money.” He can be reached at (419) 842-0334 or email him at firstname.lastname@example.org.