On CNBC this morning, the talking heads pitched the new job loss figures in the most negative way. They focused on the fact that the 533,000 jobs lost (according to payroll data) were the highest in years, but they compared this absolute number with data going back to the 1970s and earlier. What’s missing? The fact that the economy has close to a record number of people in the labor force. In 1974, for example, when there were high monthly job losses during the 1973-75 recession, the labor force was 92 million. Today it is 155 million, or 68 percent bigger. I don’t have the monthly data handy, but I’m willing to bet that the 533K job loss is not close to the monthly percentage job losses in at least three of the months during the 1981-82 recession.
Interestingly, also, the CNBCers spent a large amount of time commenting on the 533K number and not the two tenths of a percentage point increase in the unemployment rate. The current 6.7 percent unemployment rate is still well below the 7.4 percent rate that President-elect Clinton inherited when Clinton’s economic advisers were calling for a major reduction in the U.S. government’s budget deficit.
READER COMMENTS
Justin Fox
Dec 5 2008 at 10:49am
Bet lost. The last monthly percentage drop bigger than this November’s was in May 1980. There were four bigger drops in the 74-75 recession. But of course you’re right that we ought to be paying attention to percentages and not raw numbers.
David R. Henderson
Dec 5 2008 at 11:33am
Wow, Justin. That was quick. But I haven’t lost the bet so far. Look again at what I wrote above.
MattYoung
Dec 5 2008 at 11:34am
Thank you for making that point! Correcting innumeracy is a thankless task.
David R. Henderson
Dec 5 2008 at 12:41pm
Justin,
Oops. It was I who hadn’t paid close attention. I just noticed your word “the” which started your second sentence. That makes all the difference.
Best,
David
Cyberike
Dec 5 2008 at 1:12pm
About the percent unemployment rate: MSNBC reports that “The unemployment rate would have moved even higher if not for the exodus of 422,000 people from the work force. Economists thought many of those people probably abandoned their job searches out of sheer frustration.”
So in the last month, 422K of the total 533K new unemployed are not even counted?
We cannot continue to say that unemployment does not look so bad because percent unemployed is better than year X when we fail to count so many. These are still people without jobs.
Gary Rogers
Dec 5 2008 at 3:38pm
Speaking of CNBC, there was also a conversation this morning about the government continuing to interfere in failing markets. Everyone except Rick Santelli thought it was obvious that the government has to intervene or we will be in a much worse situation.
Is this correct? If so, I certainly would not consider it obvious. I would love to hear some discussion based on good economics about what might have happened if the government had not stepped in. Possibly, the markets would have started some early self-correction and people would see that things make sense and can right themselves. This would create some confidence, even though the situation is bad. As it is, markets have no chance to adjust because the fed and treasury continue to intervene. Consequently, nobody has any confidence, which is a killer for markets. We do have more to fear than fear itself, and that is a meddling government.
To add to the argument, we are doing about the same thing we did in 1929 and that Japan did in the 90s and it is not working. Are there any historical examples where a government kept a hands off policy?
Mr. Econotarian
Dec 5 2008 at 3:43pm
I wonder how many of the “building workers” have moved back to their country of origin…
Garrett Schmitt
Dec 5 2008 at 4:08pm
While we’re being picky about the proper use of statistics, the payroll employment number isn’t comparable to the labor force number, because they come from different data sources and use different concepts of “employment”. Constructing a percentage by dividing payroll employment by labor force is a bit like expressing orange crates as a percentage of oranges.
The labor force number (154,616,000 seasonally adjusted, down 422,000) comes from the household survey, which generates a household employment number (144,285,000 seasonally adjusted, down 673,000 over the last month).
Compare household employment with the payroll employment figure (136,167,000 seasonally adjusted, down 533,000). You can see the concept difference leads to a discrepency bigger than the monthly changes involved.
It’s a common mistake, but it doesn’t get criticized enough–probably because the payroll survey has a bigger sample, even though it explicitly doesn’t cover the self-employed or agriculture. Also, payroll employment and household employment are still highly correlated in terms of change over time–we use the payroll survey (among other sources) in estimating subnational employment.
comsense08
Dec 5 2008 at 5:50pm
It’s always so interesting to see how everybody thinks about unemployment numbers for the nation, while here in Michigan, we have been above those numbers for years! We have counties here in Michigan that have reached 13% unemployment, and this is after losing over 30,000 in population in 2007 alone.
We have had liberal leadership, driven by the automotive industry and UAW here for 6 painful years and each year gets worse (despite the election promises that we “will be blown away”). So, take note the rest of you. We now have national leadership with the same mindset Michigan has existed under for 6 years. So goes Michigan, so goes the nation. You can keep running numbers any way you want, the end result will be the same….. the numbers will increase long before they decrease. Oh, and the blame game?…. you guessed it. Bush’s economic policies. Can anybody detail to me exactly what economic policies were responsible for Michigan’s failure? Anybody?
Jacob Oost
Dec 6 2008 at 7:58pm
We’re not still pretending that the big media is anything other than Obama’s personal Ministry of Propaganda, are we?
They need to make the case for his New Spiel.
Jesse
Dec 7 2008 at 3:57pm
When we use raw numbers, this is the worst employment drop since 1975.
When we use percentages, this is the second worst employment drop since 1975… and the worst since 1980.
Conclusion: There’s an evil liberal conspiracy to trick us into thinking that the economy isn’t too hot right now.
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