1.2 MILLION DROP OUT, SO UNEMPLOYMENT IS DOWN?

February 6, 2012

Hey folks, good news!

Another 1.2 million people dropped out the workforce, which means that Bureau of Labor Statistics (BLS) economists can say that unemployment has moved down to 8.3 percent without that messy job-creation thing getting in the way.

That’s been such a bummer for Obama. But now he doesn’t have to worry about his programs actually doing anything, since the invention of the new government BLS math to replace the old government BLS math makes job creation obsolete. That's just perfect for the Democrats. Like I said in a column under economic issues last month, this is called "Fuzzy Math."

Since many conservative economists and political commentators use the Gallup resources through Princeton University to measure real unemployment, I thought it would be a good idea to use the old BLS formula with Gallup's findings and calculate what President Obama doesn't want to broadcast.  He doesn't want us to add the number of people "out-of-work" (who have filed unemployment claims) with those who have stopped looking for work (for whatever reason, but mostly because of discouragement) and those who are working one, two, three or four part-time jobs, and those whose unemployment benefits have run out (and thus were forced off the rolls).

Here is the real math: In January, the number of those without a full-time job: 16.4 percent.

To back this up, the folks from ZeroHedge and their senior researcher, Mike Shedlock, has done their own math which doesn't miss the mark at all.

ZeroHedge says that if you add back in the 5 million people who have permanently dropped out the labor force, as reflected in the historical average workforce participations rates, the “implied” unemployment rate is 11.5 percent and rising, not falling. Add in those who are working part-time at one to four or more jobs and the percentage hits 16.5!

Shedlock says that this “also means that the spread between the reported and implied unemployment rate just soared to a fresh 30 year high of 3.2%. And that is how with a calculator and just one minute of math, one strips away countless hours of BLS propaganda.”

Last month ZeroHedge reported that the spread between the reported and implied unemployment rate was at 2.9 percent, then “the widest divergence to reported data since the early 1980s. And because we know this will be the next question, extending this lunacy, America will officially have no unemployed, when the Labor Force Participation rate hits 58.5%, which should be just before the presidential election.”

Indeed, that’s how the story gets worse from here.

ZeroHedge used the historical workforce participation rates to estimate the workforce, but as  Mike Shedlock points out, participation rates have declined again “taking out a 1984 low.”

Instead of the historic rate of 65.8 percent participation in the workforce, we are now at 63.7 percent. That means that we are literally years away from replacing jobs that we’ve lost since Obama became president. So many have lost heart looking for work that it’s going to be some time before they become candidates for employment again. 

One of the few Wall Street economists who sees this is Lindsey Piegza, of FTN Financial in New York.

“It was a better-than-expected report, the strongest report that we've seen in quite some time,” Piegza told Reuters. “The big question is -- here's the thing: the reason we're seeing the unemployment rate drop is because more and more people are dropping out of the labor force. I know the market wants to rally on this number but remember we need a minimum of 250,000 just to cover demographic change. So we're almost at the place where we need to be to reabsorb the nine million people who lost their jobs during the Great Recession. This pushes the bar even higher for payrolls for the rest of this year. Given that the bar is so low we have to take this in the context that it's still not good enough."

As Piegza and others have pointed out, the 243,000 jobs that were reported aren’t enough to keep up with the number of people joining the labor force, yet alone, those who have lost their jobs.

“People should take it with a grain of salt,” Scott Brown, an economist with Raymond James and Associates of Saint Petersburg, FL, also told Reuters “since they are January figures and subject to revisions. We also had some unusually mild weather.”  

In the end what it means is that wages in the US have been permanently reduced by $208 billion per year and counting so far. That’s about 1.5 percent of GDP just in wages, not counting anything that is actually produced by those workers. When you figure in total output subtracted from GDP from missing workers, the number is closer to 2.1 percent of GDP that’s permanently missing from our economy. That’s about $320 billion.

Even the most optimistic projections for Obama’s millionaires’ tax doesn’t come close to raising that amount.    

Over the long-term those little variations of 2 percent more or less in GDP growth make a huge difference in our economy.  Over a ten-year period an economy that grows by 2 percent versus an economy that grows by 4 percent is the difference between having a GDP of $18.5 trillion versus a GDP of $22.5 trillion by year ten.

In total over ten years, it means that the economy will miss about $20 trillion worth of GDP in those ten years, and between $3.4-$4 trillion in tax revenues unless we start to follow pro-growth policies that lead to job creation for someone other than major Obama donors.

See? And here I ended up doing some math anyway. I couldn't resist. 

That’s just another reason to deny Obama four more years. Now I have 20 trillion reasons plus one. And so do you.


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