The December employment figures

As president, Trump will get sneak peek at jobs report

by Patrick Gillespie | January 5, 2017: 4:27 PM ET

President Obama has the privilege of getting a sneak preview of the U.S. jobs report every month, before it is released to the public.

On Thursday night, the president will get his last early peek. Starting next month, President-elect Donald Trump will start receiving the news the night before.

The monthly jobs report is considered one of the most important measures of the health of the economy. The critical information is kept under a tight seal, until it is released on the first Friday of every month.

It is hugely influential, in terms of its potential to affect the performance of the global financial markets.

The White House’s Council of Economic Advisers briefs the president on the jobs numbers the night before they are released. It’s standard procedure.

Well, of course: that’s so the President and his political team get a chance to figure out how to spin the numbers to their advantage.

I have stated previously that I find the U-6 numbers far more important than the ‘official’ U-3 figure. The pre-release economists’ guesstimates for November were for 181,000 new jobs, and U-3 unemployment unchanged at 4.9%. They got the new jobs number very close, at 178,000, but U-3 dropped to 4.6%. Why? Because 226,000 people dropped out of the workforce! U-3 is based on the number of people employed, plus the number of people out of work and actively searching for work. With 45,000 more people dropping out of the workforce than new jobs created, then yes, U-3 is going to drop.

U-6 is defined as “Total unemployed, plus all persons marginally attached to the labor force, plus total employed part time for economic reasons, as a percent of the civilian labor force plus all persons marginally attached to the labor force,” with Marginally Attached being defined as “those who currently are neither working nor looking for work but indicate that they want and are available for a job and have looked for work sometime in the past 12 months. Discouraged workers, a subset of the marginally attached, have given a job-market related reason for not currently looking for work. Persons employed part time for economic reasons are those who want and are available for full-time work but have had to settle for a part-time schedule.” In other words, U-6 gives us a more complete picture of what the unemployment situation really is, and it would seem, from Heather Long’s article, that the public see the U-6 number as more realistic.

We noted, soon after the November unemployment figures were released, that it has only been since October of 2014 that the U-6 number was double, or more, of U-3. The worst month of the recession for unemployment, October of 2008, had U-3 at 10.0%, but U-6 stood at 17.1%, a horrible figure, but not close to double U-3. In the 25 months since October of 2014, U-6 has doubled U-3 eight times.

So, what will the official numbers show this morning? Will the economists’ guesstimates be close, or way off? Will the labor force grow, or will we see more and more people dropping out? The Wall Street Journal stated that:

Employers have added an average of 180,000 jobs a month through November, and economists expect to keep that pace through December. It would mark the lowest rate of job creation since 2012. In 2014 and 2015, employment had expanded at the fastest rate since 1999.

and

Economists expect the unemployment rate to tick up to 4.7% from 4.6% in November. Still, the expected rate would be the lowest level of unemployment to end a year since 2006. The historically low unemployment rate represents a tighter labor market and helps explain why employers have been slower to add jobs in the past year.

From The Wall Street Journal:

How Low Can the Unemployment Rate Go?

Already at a nine-year low, the 4.6% unemployment rate might head lower still

By Steven Russolillo | January 5, 2017 2:41 p.m. ET

One key question for the U.S. labor market this year: How low can the unemployment rate actually go?

The Labor Department defines unemployment as pertaining to anyone without a job who is actively looking for work. Not without its flaws, the unemployment rate essentially boils down the job market into a single number. At 4.6%, it is already at a nine-year low as the final monthly report of 2016 is set to come out Friday.

But the lower the unemployment rate gets, the further it goes into unfamiliar territory. The Labor Department’s monthly statistics, which date back to 1948, show that the unemployment rate has been at 4.6% or lower just one-quarter of the time. And the majority of those readings came in the 1940s, ‘50s and ‘60s.

If current labor trends persist, it is likely headed lower. The economy added 180,000 jobs a month, on average, in 2016, down from 229,000 in the prior year. Assuming the economy adds around 200,000 jobs a month in 2017 and the labor-force participation rate stays relatively constant, the unemployment rate would fall to 3.9% by the end of the year, according to a model maintained by the Federal Reserve Bank of Atlanta.

A little bit further down was what I saw as the money paragraph:

Of course, the headline unemployment rate alone doesn’t tell the full story. The economy is in a much different state now than it was in the late 1990s. Wage growth has only recently started to improve. Overall participation in the labor force is still historically low. And full-time jobs aren’t as plentiful as they used to be. New research shows a majority of jobs created from 2005 through 2015 were considered “alternative work”—either temporary or contract employment, according to economists Lawrence Katz of Harvard University and Alan Krueger at Princeton University.

The truth is simple: the official U-3 unemployment numbers are so divorced from reality as to be worthless, if not completely bogus. The U-6 numbers tell the tale.

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Update: U-3 came in at 4.7%, matching projections; U-6 dropped to 9.2%, just under doubling U-3. New jobs = 156,000, which is below projections.

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