In the weakest job report in 12 months, the Bureau of Labor Statistics announced Friday that the economy created a mere 69,000 seasonally adjusted net new jobs in May. The official "headline" unemployment rate—known as U3—rose to 8.2 percent. An alternative measure labeled U6—which includes part-time workers who want full-time work but can't find any, and some but not all of the millions of people who have become too discouraged to look for work—rose from 14.5 percent to 14.8 percent.
One positive: The civilian labor force participation rate rose from 63.6 to 63.8 percent and the employment-population ratio rose from 58.4 to 58.6 percent.
The number of Americans unemployed for six months or more rose from 5.1 million to 5.4 million. Making matters worse, revisions changed growth in payroll employment in March from 154,000 to 143,000 and in April from 115,000 to 77,000.
The BLS jobs report is the product of a pair of surveys, one of business establishments and the Current Population Survey of 60,000 households. The establishment survey determines how many new jobs were added. The CPS provides data that determine the official "headline" unemployment rate, also known as U3. That's the number that is now at 8.2 percent.
The only other good news in the report was that the CPS showed 422,000 more Americans employed in May with 642,000 more now in the labor force. But those numbers are a reversal from recent reports.
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Overall nearly 24 million Americans are now counted as jobless or underemployed. But if millions of Americans were not leaving the labor force, those statistics and the unemployment rate would look a good deal worse than they do, with nearly 29 million out of work. Indeed, depending on how the calculations are made regarding the labor force participation rate, official unemployment right now could be as high as 11.4 percent, instead of 8.2 percent, and combined unemployment and underemployment as high as 17.5 percent, instead of 14.8 percent
What's going on?
As both amateur and professional analysts have noted for some time, at least some of the contraction in the labor force participation rate derives from the retirement of the first wave of "Baby Boomers." The oldest Boomers are turning 66 in 2012, the first year they can retire with full Social Security benefits. That is a natural occurrence that would be taking place whether we lived in hard economic times or not.
But how big a percentage of the drop in the labor participation rate is caused by this "structural" demographic realignment is a matter of contention. The Economic Policy Institute puts it at about one-third of the total of what it calls "missing workers." The other missing workers—about 2.7 million of them—are part of "cyclical" fluctuations in the economy, that is, the job situation defined by recession and recovery. Most of these workers would presumably return to the labor force if the job situation perked up.
EPI isn't alone in analyzing missing workers. Greg Ip puts their number at about 5.0 million. Evan Soltas calculates 5.8 million. A team at the Chicago Federal Reserve Bank has, like EPI, put the number at about 2.7 million.
What does all this mean?
Most importantly, it means that cyclical forces—played out this time as a deep and prolonged recession and a slow, unevenly distributed recovery—have driven millions out of the labor force who would otherwise still be in it. In other words, unlike voluntary retirees, these millions didn't want to leave, but circumstances forced them out. Because they aren't in the labor force, they aren't part of the calculations of the unemployment rate. If they had stayed in and not found jobs, the official unemployment rate—that 8.2 figure this month—would now be much higher. In fact, because of the lower labor participation level, the unemployment rate (which already suffers from other problems as a description of what the economy is actually doing) greatly understates the true situation.
For 2011, the official unemployment rate averaged 8.9 percent. By EPI's calculations, if those millions who did not want to leave had stayed in the work force, the jobless rate would have averaged 10.7 percent last year. As noted, other analysts figured the rate differently. The Chicago Fed team says 9.7 percent. Soltas says 11.4 percent. Likewise, the U6 un/underemployment rate would have climbed. As can be seen, all the analysts believe the skewed labor participation rate we've been seeing for the past 18 months means the unemployment rate fails to accurately measure the reality even on its own terms. What the analysts disagree about is how far off it is.
These analyses do not posit a conspiracy by the BLS or other branches of the government to meddle with the numbers. The methodologies are transparent. The data-gathering methods and formulas applied to the data are not secret. All the critics use that same data to derive their conclusions.
Here's what the new job numbers have looked like for May in the most recent six years:
May 2007: +139,000
May 2008: -190,000
May 2009: -361,000
May 2010: +516,000 (boosted by Census hiring)
May 2011: + 55,000
May 2012: + 69,000
Among other changes detailed in today's job report:
• Construction: -28,000
• Transportation & warehousing: +36,000
• Health care: +33,000
• Manufacturing: +12,000
• The average workweek (for production and non-supervisory workers) fell from 34.5 to 34.4 hours.
• Average manufacturing hours fell 0.3 hours to 40.5 hours
• The average hourly earnings for all employees on private nonfarm payrolls rose by 2 cents to $23.41. Over the past year such earnings have risen 1.7 percent, compared with an inflation rate now running at 2.7 percent. In other words, workers real wages are falling.