Another Way to Look at Jobs

Everyone on Wall Street is focused on Friday's payroll report and trying to guess how things might go relative to the consensus forecast of 150,000 jobs being created in May. Today's ADP report that 133,000 private sector jobs were created in May is disappointing and implies that Friday's jobs number may be less than the consensus. In turn, this suggests too few jobs are being created to drive unemployment lower. If Friday's jobs number is too low, it could also mean reconsideration of quantitative easing -- a fresh flood of money -- by the Fed.

At the same time, Main Street and the nation's politicians are likely to focus on Friday's unemployment rate. The consensus is that the government will report that the seasonally adjusted unemployment rate will remain unchanged at 8.1%. However, the real meaning of the government's unemployment rate is becoming increasingly difficult to figure out. It seems like recent declines in the unemployment rate are incompatible with the weak GDP numbers -- particularly, the revised 1.9% GDP growth of the first quarter of 2012. It also seems as though a major reason the unemployment rate has been decreasing has to do with a sharp decline in the participation rate -- the percentage of Americans working or actively seeking work. As people who were seeking work become discouraged and give up looking for work, the unemployment rate tends to decrease.

Another way to look at the jobs situation that could be used by both Main Street and Wall Street is to consider the number of Americans employed as a percent of all Americans. This avoids the issue of the participation rate and whether it is influencing the unemployment rate. Instead, it implicitly sets a simple goal: increase the number of Americans working as a percentage of all Americans 18 or older. The results of this kind of calculation are shown in the chart below based on the Gallup Daily tracking survey of 30,000 Americans each month.

Some interesting things to note when looking at the jobs picture in this way:

• The percentage of Americans employed in April 2012 at 61.9% is essentially no different than the 62.1% of March and the 62.0% in April 2011.
• The lack of improvement in this employed ratio tends to support the idea that whatever job growth has taken place over the past 12 months, it has only been sufficient to keep up with the growth of the U.S. population.
• The situation has improved compared with two years ago when this employed ratio was 60.9%.

Contrary to the government reports of late 2011 and early 2012, this fuller view of the jobs situation suggests little or no improvement through April 2012. However, preliminary numbers for May imply a possible substantial increase in this ratio for the month. In turn, this implies that current job measurements may have borrowed jobs from the future -- and may catch up somewhat this month.

It may be that all the efforts to adjust today's job measures have created unintentional distortions. A simpler approach that just look at the percentage of Americans working may, therefore, provide a better -- less adjusted and more accurate -- view of the real jobs situation in the U.S. at this time.

Update: Read about Gallup's unemployment and underemployment results for May.

Did a Million Americans Leave the Ranks of the Unemployed in April?

Friday's BLS report shows, on an unadjusted basis, that a million Americans left the ranks of the unemployed in April. The number of unemployed fell to 11.9 million in April from 12.9 million in March. Part of this decline came from a reduction in the size of the workforce of about 400,000 as the workforce participation rate fell to its lowest level since 1981. The rest resulted from an increase of about 600,000 in the number of employed Americans.

As a result of these household survey findings, the BLS reported an unadjusted unemployment rate of 7.7% -- down from 8.4% in March. In contrast, Gallup's unadjusted unemployment rate, based on nearly 30,000 random phone interviews, was 8.3% -- also down from 8.4% in March.

The slow economy suggests April new jobs created were likely a lot closer to the BLS payroll increase of 115,000 than the household survey's nearly 600,000. It also suggests that the unadjusted unemployment rate is probably closer to Gallup's 8.3% than the government's 7.7%. In turn, the foundation supporting the government's decline in its seasonally adjusted unemployment rate to 8.1% seems a lot weaker than that supporting Gallup's survey results showing an increase in the adjusted unemployment rate in April.     

Higher Unemployment Rate Likely Despite New Jobless Claims

Gallup's seasonally adjusted unemployment rate for April is 8.6%. The BLS could report less of an increase on Friday -- but not because of the latest jobless claims report, which shows a sharp decline during the most recent reporting week. That report reflects jobless claims that occurred after the mid-April time frame of the government's household unemployment survey.

Wednesday's ADP report suggests another relatively weak new jobs number -- adding fuel to the question of whether the decline in the unemployment rate earlier this year largely reflects such factors as the unusually warm weather and an early Easter as opposed to real improvement in the unemployment situation. Gallup's data seem to confirm that it is the government's unemployment data that have been misaligned, not the other economic data showing relatively slow economic growth.

Gallup's seasonally adjusted unemployment rate for March was 8.1% compared to the BLS unemployment rate of 8.2%. Of course, the unemployment rate the government reports on Friday may not be as high as Gallup's seasonally adjusted rate. The BLS might apply a smaller seasonal, as it did in February and March. Further, it looks like the workforce is continuing to decline and that could keep the unemployment rate lower than it would be otherwise.

While a weak new jobs number may impact Wall Street by itself, a combination of a weak jobs number and an increase in the unemployment rate might have a bigger impact on the Fed and the Street. In this regard, Gallup's unemployment data suggest QE3 may be coming a lot sooner than the FOMC expected when it met last week.