Gallup Provides Best Unemployment Measure

Unemployment is a key issue in this presidential election year having both political and economic implications no matter the results. In turn, the credibility of the findings is likely to depend on face-validity of the results. Given the constantly changing -- and sometimes surprising nature of the government's reports -- Gallup's measurement of the U.S. unemployment rate, based on a random sample of more than 15,000 phone interviews monthly, is likely the best way to monitor the real unemployment situation.

On Friday, Jan. 6, the government reported the U.S. unemployment rate for December 2011 was 8.5% on a seasonally-adjusted basis and 8.3% unadjusted. The prior day, Gallup reported its unadjusted unemployment rate at 8.5% for December -- the same as in November. On an unadjusted basis, both Gallup and the government show a relatively stable unemployment situation over the last three months of 2011 -- probably the best view of the real situation.

However, the government's adjusted data -- as revised -- shows something completely different with the unemployment rate declining steadily from 8.9% in October to 8.5% in December. In 2012, anything may happen, as the government rebases its data in January and then adjusts its results monthly. The current declining trend could continue or reverse -- either way all of these adjustments may create political debates about whether the real job situation is improving or not.

Of course, Gallup's results may also go in one direction or another in the months ahead. Regardless, those using Gallup's measures to track the unemployment situation will know that the results will not be adjusted, rebased, or otherwise modified.

Reducing Unemployment by Shrinking the American Workforce

On Friday, Dec. 2, the government surprised Wall Street and most Americans by reporting that the U.S. unemployment rate fell to 8.6% in November on a seasonally adjusted basis, from 9.0% in October. Unfortunately, this is more a sign of how bad the job market is right now than an indication that job conditions are improving.

On Thursday, Gallup reported that its not-seasonally adjusted unemployment measure was 8.5% for November -- not much different from Gallup's 8.4% and the government's 8.5% not-adjusted rates of October. However, the government's not-adjusted measure fell to 8.2% in November.

Normally, this sharp drop in unemployment -- whether measured before or after seasonal adjustment -- would be very good news, a sign that the U.S. economy is improving at a faster pace than generally recognized. Instead, a careful look at the government's data shows something else -- the decline in the unemployment rate was largely due to a sharp decline in the size of the U.S. workforce.



           

On an unadjusted basis, the size of the workforce fell by 405,000 Americans in November. As a result, the U.S. workforce of November 2011 is the same size as it was in November 2010. If the number of employees dropping out of the workforce last month were still looking for work, the unadjusted unemployment rate for the month would have been 8.5% -- the same as Gallup had measured in November and as the government did in October. Presumably, this would have resulted in essentially no change in the seasonally adjusted unemployment rate for November.

Of course, some people are always leaving the workforce as they retire, lose their job, or just get discouraged. However, the large number of Americans dropping out of the workforce last month likely also reflects the severely depressed job market conditions of the past three years.

Most importantly, reducing the unemployment rate by driving potential employees out of the workforce is not a solution to today's job problem or a good sign for the U.S. economy. Instead, Friday's unemployment report is another sign of how bad job-market conditions have been for far too long.

Surge in November Consumer Confidence Not Such a Surprise

Guest post by Gallup Senior Editor Lydia Saad


The most surprising thing about the Conference Board's Consumer Confidence Index released Tuesday is that it came as a surprise to people who are supposed to be experts at following it.

As reported on Bloomberg.com: "The Conference Board's Index increased to 56 from a revised 40.9 reading in October, the biggest monthly gain since April 2003, figures from the New York-based private research group showed today. The gauge, at a four-month high, exceeded the most-optimistic forecast in a Bloomberg News survey of economists."

Consumer attitudes about the economy have been slowly recovering since bottoming out in August. This has been seen consistently on Gallup's daily and weekly reports of Economic Confidence (see links to Gallup stories below), as well as in the Reuters/University of Michigan mid-month and final monthly Consumer Sentiment Index reports.

The Conference Board's Consumer Confidence Index normally tracks very closely with Gallup and Reuters/Michigan. In fact, its November index figure is in line with the magnitude of changes since August in both the Gallup and Reuters/Michigan indexes. The Conference Board's November result is only remarkable because of the decline that index posted in October. That is what made this month's return to an otherwise "normal" level of confidence appear so dramatic. 

The Conference Board and Reuters/Michigan indexes can have tremendous influence on U.S. equity values -- particularly on the days the indexes are released -- because the market views them as meaningful barometers of consumers' willingness to spend. However, a lot of emphasis is being placed on the shoulders of indexes that are each based on a single monthly sample of Americans.

Both the Conference Board and the Reuters/Michigan indexes have been around for decades, and for much of that time had an exclusive claim on consumer confidence-type data. But this is not 1970. In 2011 multiple consumer indexes are available, all largely tracking the same underlying public attitudes about the nation's economy.

Economists and others who follow the Conference Board and Reuters/Michigan closely must view these monthly reports in the context of all of the available confidence data, particularly Gallup's. Had the economists surveyed by Bloomberg done that, they could have easily forecast that the Conference Board was due for an upward correction and then some, after its aberrantly low October result. In fact, the median projection issued by the 70 economists polled -- 44 -- suggests a lack of awareness of all available data that could help understand trends in consumer confidence.

"The median projection in the Bloomberg survey called for a confidence reading of 44. Estimates of 70 economists ranged from 37 to 49.6."

Over the past month, Gallup has been telling a consistent story of modestly improved consumer attitudes, both in terms of their confidence in the economy, and in their spending.

• On Nov. 8, Gallup reported that U.S. Economic Confidence was "weak but steady above recent lows."
• On Nov. 15, Gallup reported that Americans' Christmas spending intentions were up 7% over a year ago.
• On Nov. 22, Gallup reported that upper-income Americans' Economic Confidence had improved prior to the supercommittee stalemate.
• On Nov. 28, Gallup reported that Americans' self-reported average daily spending over the Black Friday weekend was up slightly compared to a year ago.

All of this appears to be borne out by the healthy increases in Black Friday and Thanksgiving weekend retail sales as reported by ShopperTrak and the National Retail Federation. That information was in the news on Monday and helped send the Dow Jones Industrial Average up nearly 300 points by the close of trading. Whether the Conference Board's report on Tuesday warrants further increases on Wall Street is debatable.

According to Gallup Daily tracking, Americans' economic confidence at the end of November is barely higher than it was at the beginning of the month, following the more significant gains seen between October and the start of November. However, Conference Board reports can alter reality. If Wall Street remains bullish because it believes consumer confidence is now improving, consumer attitudes could follow suit.

To stay up to date on this and Gallup's other economic confidence metrics, bookmark these important links:

Daily: Employment, Economic Confidence and Job Creation, Consumer Spending
Weekly: Employment, Economic Confidence, Job Creation, Consumer Spending
Read more about Gallup's economic measures.
View our economic release schedule.

You can also sign up to receive all of Gallup's economic stories by choosing "economy" when you sign up for email alerts.

If you would like to learn more about how our economic metrics work, please email us at
media_inquiries@gallup.com.

Real (Unadjusted) Unemployment Best in Two Years

This is the best time to look for a job in more than two years -- although you wouldn't know it from the government's most recent unemployment report. Today the government reported that the not-adjusted unemployment rate fell to 8.5% in October, down from 8.8% in September, and continuing a steady decline from 9.3% in July -- and was the lowest unadjusted unemployment rate reported by the government since January 2009. Gallup reported a similar not-seasonally-adjusted unemployment number beginning in mid-October and on Thursday noted that the month ended at 8.4%.

The government's own numbers show that the number of employed Americans increased by 485,000 in October from September 2011 following an increase of 267,000 in September from August.

All of this is hidden because this is BLS household survey data, and most observers focus on what is reported in the survey of businesses known as the BLS establishment survey. The real unemployment situation is also disguised as the BLS adjusts the data for seasonal hiring in an effort to reveal what some might consider the underlying trend.

Given the length of the current recession/slowdown, observers can argue over seasonal adjustments and how they are used for analytical purposes. Regardless, it is clear that Americans are telling Gallup and the BLS that companies are hiring right now and the real (unadjusted) unemployment rate is at its lowest point in more than two years. While this may turn out to be temporary, it is also a tidbit of sunshine that the millions of unemployed and underemployed Americans deserve to know is happening.

Economy Is Getting Worse

Gallup's Daily tracking shows a sharp increase in the percentage of Americans saying the economy is "getting worse" over the past several months. In particular, 80% of upper-income Americans said the economy was "getting worse" in August -- even higher than the 77% of other Americans.

This pessimistic trend is consistent with recent economic reports showing retail sales were flat, no net new jobs were created, and manufacturing activity slowed last month. Worse, both this level of pessimism, and the fact that upper-income consumers were more negative than their middle- and lower-income counterparts, hearkens back to the days of recession and financial crisis in late 2008 and early 2009.

In early September, Gallup data shows Americans became slightly less pessimistic following the Labor Day holiday, the president's jobs proposal, and a surge on Wall Street as major central banks announced they would provide liquidity to major European banks.

Regardless, the overwhelming majority of Americans may be right -- the U.S. economy may not just be stagnating -- but instead "getting worse" with another recession possible. Given the seeming political deadlock concerning fiscal policy, this makes the Fed meeting this week a potential pivotal point in the future course of the economy.