The Official Unemployment Rate; an "Official" Lie

by Paul Craig Roberts

KINGSTON, NY, 8 February 2011 — Do you believe Friday’s government report that the unemployment (U.3) rate fell last month from 9.4 percent to 9.0 percent?  How could the rate decrease when January only saw a reported increase in payroll employment of 36,000 jobs when some 150,000 new jobs are needed to be created each month just to stay even with population growth? 

According to Friday’s Bureau of Labor Statistics report, a 0.4 percentage point decline in the unemployment rate means “the number of unemployed persons decreased by about 600,000.”  Where did the other 564,000 January jobs come from as they cannot be found in the reported jobs data?

The jobs are phantom jobs created by faulty seasonal adjustments. As statistician John Williams (shadowstats.com) puts it, “the extraordinary severity and duration of the economic duress in the United States during the last three to four years has destabilized traditional seasonal-factor adjustments and the related monthly reporting.”

In other words, the 564,000 people are, in reality, unemployed and are not employed in the non-existent seasonally-adjusted jobs that the government added to the numbers.  Williams reports that the unadjusted data show that “the employment rate rose in January.”

It’s BLS magic. Unemployment rose, but the unemployment rate fell.

Washington pulled the same stunt last month.  Using this government ploy, theoretically, the U.S. could have a zero unemployment rate while the entire population is out of work!

Don’t expect the financial press to tell you what this Trend Alert just told you.  In response to the cooked numbers, Bloomberg quoted economists, whose job is to hype recovery, that “we’re setting ourselves up for a pretty strong improvement in payrolls.” (4 February 2011)

According to John Williams, even the measly 36,000 job gain is an illusion created by the faulty “birth-death” model, which guesses that new startups add more jobs each month than business failures subtract. This might sometimes be true, but not during an economic downturn.  Without the jobs added by this faulty estimating technique, “the reported January 2011 payroll gain of 36,000 would have been a decline of 52,000!”

Indeed, the BLS “birth-death” model’s over-estimate of payroll jobs results in quiet annual revisions in the number of employed. In Friday’s employment report, largely unnoticed by the financial press, the BLS reports in its benchmark revision that there were 483,000 fewer people employed in December 2010 than previously reported.

The U.3 unemployment rate is the headline rate. It receives all the media attention, because it only measures 40 percent of the unemployed, thus making the recession look smaller than it really is.  No discouraged workers who have given up looking for work are included. The government has a more complete measure of the unemployment rate known as U.6, which includes the short term discouraged (less than one year).  That rate is16.1 percent. John Williams adds in the long term discouraged, which brings the true rate of unemployment to 22.2 percent.

Economists have no known way of explaining how an economy, in which millions of manufacturing and professional service jobs have been offshored, can compensate for the lost American incomes and purchasing power.  The profits from offshoring flow to a narrow segment of the population consisting of corporate management, shareholders, and Wall Street. These income flows cannot replace the millions of lost incomes and careers of those whose jobs have disappeared. There is a limit on the ability of the mega-rich to buy and to consume.  The consumption of a few people cannot drive an economy. This is why the concentration of income and wealth in a few hands kills an economy.

For a decade the American economy has been driven by private debt accumulation.  Today policymakers in Washington are trying to drive the economy with public debt accumulation. The plan cannot succeed. The annual budget deficit of the U.S. government is being financed by the Federal Reserve by creating new money. For now, because of the impaired condition of U.S. financial institutions and the over-indebtedness of the American population, the money injected into the financial system by the Federal Reserve is not being lent. The banks need the reserves to bolster their solvency and consumers are too indebted to borrow. Thus, the money multiplier has collapsed, preventing the Federal Reserve’s money creation from resulting in rapidly increasing inflation.

More BS from the BLS Just as the unemployment rate is understated, so is the Consumer Price Index. The CPI no longer measures the prices  of a fixed basket of goods, but assumes that people substitute cheaper items for those that rise more in price.

Moreover, inflation can also arise from decline in the dollar’s exchange rate vis-a-vis other currencies. With the dollar being the world reserve currency, many commodities are priced in dollars. As more dollars are being created than other currencies, food and commodity prices are rising as a result of the dollar’s falling exchange rate.

The Fed chairman says that he can avoid inflation when it appears by pulling the excess money out of the economy by selling bonds. But the Fed can sell bonds only by lowering bond prices, thus raising interest rates.  What do you think happens to the depressed U.S. economy if interest rates rise?

Stocks and whatever remains of the housing market would collapse, as would the bond portfolios of whatever remains of Americans’ pension funds. The remnants of the investment incomes of ordinary people would be wiped out. 

In other words, the Fed believes it can control the inflation, whose seeds it is planting, by wiping out the remnants of the wealth, and the income from it, of ordinary people.

This tells you all you need to know.