Wednesday, October 10, 2012

Growth Slowing, Jobs Growing?

There is a lot of confusion.  Democrats are excited about the jobs numbers.  Republicans are dubious.

Here are some facts:
1) The economic news from around the world is bad.  Most pundits and economists see growth slowing around the world and the possibility of a world recession increasing only three years after our previous recession.
2) For an economy to add jobs, it has to be growing.
3) For an economy to add enough jobs to decrease unemployment by a full half-percent, it has to be growing fast.
4) Our economy is not growing fast.

So, what's the scoop?  The BLS counts part-time workers as employed.  For every single person who works part time for a political campaign, and works even 1 hour per week at $7.50, that person no longer counts as unemployed.  Also, the Labor Force Participation Rate dropped to its highest rate since 1981.  When the LFPR goes up, unemployment looks better because people that are not participating in the labor force do not count as employed or unemployed. Note:

Unemployment% =        [Employed / (Employed + Unemployed)] 
When you decrease the denominator in a fraction, the value of the fraction increases. 

To understand why the American public is so skeptical, look at the following logic:
1) State and Local govt increased workers by the highest amount in 20 years.
2) Overall, 873,000 workers were added in September, the largest 1 month increase since 1983 when the economy was hot.
3) These numbers would be impressive even if we were in a strong expansionary phase.
4) We are in a weak expansion, very weak, and the world is bordering on recession.
5) Conclusion: Either one believes that the economy added one of the largest increases in jobs in the past quarter-century despite being moribund, slow, bad, etc.  Or, you believe there is an explanation that doesn't require you to suspend common-sense.  That other explanation is: there was a massive increase in part-time campaign workers and LFPR rose to a quarter-century high. 

The last sentence is not a right-wing conspiracy theory.  It is a sentence that every journalist covering economics should have written or uttered.  But, journalism isn't known for its strong academic credentials or fact checking skills, ironically.

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