Pethokoukis

The unemployment rate has dropped by 0.3% or more 9 times since 1990. But none looked anything like last month’s decline

101012unemployment

Sam Ro over at Business Insider notes that a 0.3% or greater decline in the unemployment rate in a single month has occurred nine times since 1990 and four times since 2000, including last month.

I decided to go back and look at those instances. Here are the five during the 1990s:

1. 7.6% to 7.3% in October 1992. Economic backdrop:

– GDP growth was 4.2% in 3Q

– Household employment fell by 92,000

– Net new payrolls increased by 178,000

– The labor force participation rate fell to 66.2% from 66.5%

2. 6.4% to 6.1% in May 1994. Economic backdrop

– GDP growth was 5.6% in 2Q

– Household employment rose 574,000

– Net new payrolls increased 333,000

– The LFP rate rose to 66.6% from 66.5%

3.  5.6% to 5.3% in June 1996. Economic backdrop:

– GDP growth was 7.1%

– Household employment rose 358,000

– Net new payrolls rose by 279,000

– The LFP rate stayed flat at 66.7%

 4. 5.5% to 5.1% in August 1996. Economic backdrop:

– GDP growth was 3.5%

– Household employment rose by 225,000

– Net new payrolls rose by 197,000

– The LFP rate fell to 66.7% from 66.9%

5. 4.7% to 4.3%  April 1998. Economic backdrop:

– GDP growth was 3.6%

– Household employment rose by 395,000

– Net new payrolls rose by 278,000

– The LFP rate fell to 67.0% from 67.1%

What we see in these five 1990s examples is that they occurred during periods of strong growth, with GDP growth averaging 4.8%. That strong growth usually generated, in turn, strong job gains in both Labor Department job surveys. October 1992 was a bit of an exception because of the decline in jobs as measured by the household survey (the one they use to calculate the unemployment rate). But that drop was offset by a huge decline in the LFP rate.

Now let’s look at the four instances when the unemployment rate fell sharply during a period of weak economic growth:

1. 9.9% to 9.6% in May 2010. Economic backdrop:

– GDP growth was 2.2%

– Household employment rose by 34,000

– Net new payrolls rose by 516,000

– The LFP rate fell to 64.9% from 65.1%

2.  9.8% to 9.4% in December 2010. Economic backdrop:

– GDP growth was 2.4%

– Household employment rose by 283,000

– Net new payrolls rose by 120,000

– The LFP rate fell to 64.3% from 64.5%

3. 9.4% to 9.1% in January 2011. Economic backdrop:

– GDP growth was 0.1%

– Household  employment rose by 110,000

– Net new payrolls rose by 110,000

– The LFP rate fell to 64.2% from 64.3%

4. 8.1% to 7.8% in September 2012. Economic backdrop:

– GDP growth is probably between 1% and 2%

– Household employment rose by 873,000

– New new payrolls rose by 114,000

– The LFP rose to 63.6% from 63.5%.

What we see here is that modest growth generated modest jobs gains, and the drops in the unemployment rate were helped along by declines in the labor force participation rate.

Except for last month. In September, we got a weird combination of weak growth, a rising labor force participation rate and otherworldly job gains as measured by the household survey.

It is a puzzler and suggests we may see a reversion or correction when the next job report comes out the first week of November.

 

 

18 thoughts on “The unemployment rate has dropped by 0.3% or more 9 times since 1990. But none looked anything like last month’s decline

  1. This is the Darden Effect…

    A new business model has been created for America by ObamaCare and the need to end-run its huge and crippling cost hikes. And we are seeing it unfold for the first time. But just wait until it spreads to other industries in the months ahead.

    What were once full-time jobs for one person have been split in half and now employ two part-timers–thereby avoiding and end-running the ObamaCare mandate. And that’s what we saw in September’s 600,000 surge in part-timers who are no longer counted among the ranks of the unemployed.

    Obviously, part timers earn less and spend less than full-timers–they add incrementally nothing to the growth of any economy. But the headcount looks better. So Obama can strut like a turkey and pound his chest claiming and pointing to a decline in the UR when the only thing that was accomplished in reality was the spreading of unemployment among a larger headcount. The illusion is complete and those folks of the lower and middle classes–the least skilled, the least educated, entry-level, minorities, etc.–are hurt These are just the very same folks Obama claims to champion.

    THE LAW OF UNINTENDED CONSEQUENCES just bit the MacDacddy on his butt.

  2. http://www.gallup.com/poll/157871/unadjusted-unemployment-rate-september.aspx

    By the way, Jim, you can stop complaining about the pace of the jobs recovery rate because the debt to GDP ratio of the American public is hovering at around 86%. While that is an improvement, it is still at a generational high.

    The good news is that Bloomberg reports about $4 trillion of debt NOT held by the government has been vaporized- paid off. Hundreds of billions more have been re-fied into much lower costs of debt service.

    So why no boom after over 3 million home mortgage refinances and workouts, credit card paydowns, a massive refinancing of corporate debt and commercial properties?

    That’s how overleveraged we were. We still have more to go. A lot more.

    So you crank up the “unsointanty” memes and dream longingly of “fiscal cliffs.” What took decades to bring us here will take at least till the end of the decade to fully unwind.

    And even then, nothing will look the same.

  3. Didn’t you forget one of the 2 variables that determines the U-3 rate. You know, the unemployment level divided by the labor force level. The 456,000 decline (3.64%) in the unemployment level not the 418,000 increase (0.3%) in the labor force level is the primary reason for the U-3 drop from 8.11% to 7.80%.

  4. MORE DECEIT AND DECEPTION:

    Jobless Claims Sank to 339,000 in Latest Week, Though Data Didn’t Include One Large State. Really?

    Since we only have 50, it should be easy enough to come up with its name. Why the secret?

    Let’s see, that 339,000 translates into about 7,000 per state. And since MIA state was a large state, then maybe we are talking 10,000. And a lot more if the state was California or Texas.

    So why was THIS lowball and meaningless number ever reported? Are we getting more Obama lies?

    Whazupwitdat?

    • The labor Department revealed that the MIA state accounted for most of the decline. Smells like California to me.

      Super-secret intrigue. Are Obama’s coverup fingerprints on this one too?

      One fart after another–somebody better open the windows in the Oval Office. America is overdue for a breath of fresh air.

  5. Check out TrimTabs Money Blog
    http://trimtabs.com/blog/2012/10/09/theres-something-very-fishy-with-september-bls-unemployment-rate/

    Summary:
    1. Employed jumped 873,000, five times previous Sept. record (since 1948). (Household survey)
    2. Unemployed dropped 456,000, double the previous Sept. record. (Household survey)
    3. Part time increased by 2nd highest previous Sept. amount (the increase due to 9/11).

    Hard to believe all these things happened at once.

    • Okay. Here’s a lesson that all “Neutron Jacks” and “Jimmy P’s” should learn.

      The U-3 rate is the unemployment level divided by the labor force level.

      So the BLS conducts it’s monthly Household Survey and determines the unemployment level. How do they do that you ask?

      The BLS estimates the flows.That is alot of flows, huh. Now Jimmy P got his arms a flapping about nothing and goes to great lengths to correlate payrolls, GDP, yadda, yadda since 1990 for nothing.

      Okay, I’ll offer him a break. Which bucket of flows to the unemployment level do you want hang your hat on, Jimmy P? Surely, you are not going to hang your hat on the labor force levels.

  6. By focusing on the decline in the unemployment rate for September in isolation, you are missing the forest for the trees. It has been clear for months that the unemployment rate would not be favorable to re-election, so they developed a two-pronged strategy based on the two different ways in which this particular measure understates unemployment – namely, by excluding discouraged workers from the labor force and by treating part-time workers who would prefer to work full time the same as if they were fully employed. The first prong was deployed for the August figure, when the rate of unemployment declined primarily due to discouraged workers leaving the workforce. Then for September they reported that the unemployment rate declined due in large part to an increase in part-time workers. Somehow they fudged their survey results to exaggerate the effects of discouraged and part-time workers – a one-two punch (and this fudging may go back to previous months as well). Of course, even with these tweaks the job market is still weak, but they are counting on two things – economic illiteracy (most of the public doesn’t understand the details of how the unemployment rate is measured) and the cooperation of the mass media, which focused as expected on the headline rate. Also, perhaps they preserve the “veneer” of integrity for the BLS staff, since they only fiddled on the margin with the well known flaws in the measure. By analyzing the August and September figures in isolation, you have unknowingly played into their game.

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