New unemployment numbers are out, but they can be misleading

For a set of routine — often, boringly constant — government statistics, the monthly updates to the unemployment rate have taken on a lot of drama this year.

We keep watching them for hopeful signs that the Great Recession truly is over where recovery counts the most, in the paychecks that sustain families month to month.

The unemployment rate is important, and there was good reason to gasp when the national rate punched into double-digit territory last month. But this indicator doesn’t give us the full jobs picture. As one Minnesota economist said, it’s “a funny statistic.”

We’ll get to the reasons why.

First, though, here’s the latest Minnesota rate for October, released today by the state Department of Employment and Economic Development.

Minnesota’s seasonally adjusted unemployment rate edged slightly higher in October to 7.6 percent compared with 7.4 percent in September. In both months, Minnesota was faring considerably better than the nation as a whole, which rose to 10.2 percent in October. 

Counting jobs, not the unemployed
You get a far better sense of how Minnesota workers are doing, though, by asking whether the state added or shed jobs during a particular month, said Christopher Phalen, an economist in the research department of the Minneapolis Federal Reserve Bank of Minneapolis and also director of graduate studies in economics at the University of Minnesota.

By that measure, today’s news was encouraging. Minnesota added 2,200 jobs during October, a positive turnaround from the period between November last year and June this year when the state lost 108,000 jobs.

Beyond that measure, you might look to the stock market or gross domestic product to get a better sense of job prospects for the future, Phalen said. For all of its emotions and greed, the market reflects an array of assessments of the future health of the nation’s employers.

The research behind the estimates
Here’s why Phalen and many other economists rely on indicators beyond the unemployment rate.

The government can’t find and count every jobless person in this vast country. That would be astronomically expensive. And it can’t simply add up the numbers getting unemployment checks. Some people’s benefits run out. And some never get the checks in the first place because they don’t qualify or they don’t apply.

So instead, the U.S. Census Bureau has conducted a survey every month since 1940, contacting a randomly chosen sample of some 110,000 individuals who are 16 and older in 60,000 households nationwide. With some sophisticated adjustments, unemployment rates are estimated from the responses to that survey. The statistically inclined can find more details here.

In Minnesota, about 1,600 households are contacted each month for the national count. The state’s estimate comes from that survey with a lot of tweaks which are explained here.  

The people surveyed go into three categories: the working, the jobless who are actively seeking work and everyone else.

The problem with everyone else
It’s the “everyone else” category that makes experts nervous. The category includes my Aunt Signe who is long retired and my neighbor who gave up her law-firm job years ago to stay home with her kids. It also includes people who responded to a layoff by going back to school to improve their skills.

Finally, it includes people who stopped job hunting because that seemed like a futile exercise during the depth of this recession. Call them the discouraged.

That latter category could be a big number given the brutal force of these hard times.

“In recessions like we are seeing now people will just go away,” said Oriane Casale, who is assistant director of DEED’s Labor Market Information Office in St. Paul. “They don’t even look for jobs because it’s so difficult to find work.”

None of those people in the “everyone else” category — not Aunt Signe, not my neighbor, not the back-to-schoolers and not the tens of thousands who gave up on job hunts — get counted in the labor force for purposes of calculating the unemployment rate.

So here’s the really “funny” part: the rate actually can worsen while the overall job market starts picking up. When discouraged folks see signs of hope and start pounding the pavement again, they go back into the ranks of the unemployed for purposes of calculating the rate. Same thing is true for students who re-enter the work force with new skills.

“Very, very sketchy and unofficial data” gleaned from the survey suggests that’s what is happening now in Minnesota, Steve Hine who is DEED’s labor market information director told reporters in a conference call today announcing the October rate.

“We are seeing a decrease in the number of discouraged workers over the past few months…well below what it was a year ago,” Hine said.

Thus, it’s no surprise that the ranks of unemployed Minnesotans grew slightly in October, and the rise very well could continue in the months to come, driving up the unemployment rate as the state’s economy improves.

Job gains beyond the flukes 
Even the category of people who say they are looking for work can be tricky, Phalen said.

“It could go either way,” he said. “They could say they are looking when they really are not.”

The list of the flukes goes on and on. September’s employment count reflects a fleeting gain due to hundreds of jobs at the State Fair. Snow and freezing temperatures early this fall set back workers in every place from gravel pits to food processing plants — but the weather smiled on them during November. Due to a calendar quirk, school started later this year meaning some education workers were not on their jobs in early September.

You get the idea. There is a lot of wiggle space in the unemployment estimates. 

The indicator Phalen prefers — the number of jobs in the economy — comes from a different survey. Each month the U.S. Bureau of  Labor Statistics contacts nearly 400,000 business establishments nationwide — including about 4,600 in Minnesota — asking about non-farm employment, hours, earnings, etc. More information is available here.

That survey shows Minnesota’s jobs gains during October came in some key sectors: Professional and business services added 5,500 positions; education and health services was up 3,700; leisure and hospitality, 1,700.

Some of those gains were offset by losses: the sector called trade, transportation and utilities lost 4,900 jobs; manufacturing shed 4,500, and construction was down 1,200.

The numbers of losses in some of those sectors over a longer term still is very sobering: The state has lost 41,300 manufacturing jobs during the past 12 months; 25,400 professional and business services jobs; 22,700 jobs in trade, transportation and utilities and 13,700 construction jobs.

Asked about the fragility of Minnesota’s 2,200 jobs gain during October, DEED Commissioner Dan McElroy said: “I wouldn’t claim that we are out of the woods…but this is better than not having added 2,200 jobs…You’ve got to start someplace, and this is a good place to start.”

Useful but limited light
The people who release the monthly statistics at Minnesota’s DEED are among the first to agree that their numbers shed limited light on the state’s economy and on job prospects for the future.

Measures of productivity and economic output might be more useful, because some companies can increase productivity while holding employment steady or even trimming a few jobs. Generally that’s considered to be a good thing which could lead to long-term growth for the state’s economy and the jobs picture too. 

But GDP numbers and other productivity indicators are not readily available at the state level, said Casale at DEED.

“That’s why we focus pretty much exclusively on labor market indicators,” she said.

They also look at more subtle signals. Temporary hiring is a big one.

“That often is a precursor to more permanent hiring,” Casale said. “But the number really bumps around because employers will hire lots and lots of new temp people, then let them go and hire them back.”

For that reason, labor experts hesitate to declare an uptick is underway until they see an increase in temporary hiring sustained over three months or more.

Taking those caveats into consideration, DEED officials said today that Minnesota’s temp-jobs trends are giving the signal of improving conditions that they had hoped for. The state added an estimated 3,200 temp jobs in October on top of 2,100 in August and 1,300 in September.

The September to October increase is the largest since the 1990s.

Still, only time will tell the full impact this recession has had on Minnesota’s jobs market. It can’t be read from this month’s jobs reports or next month’s either.

Looking at longer-term trends, one clear point is that Minnesota suffered the depth of the recession earlier than many other states, partly because its forest products industry fell down as housing construction halted. Now it is pulling out of the recession earlier too. The gap between the state and national unemployment rates — 7.6 percent to 10.2 percent respectively — is too wide to be a statistical fluke, DEED officials said.

Why? McElroy points to health care, financial services, medical devices and food processing. Those sectors add up to “a big, broad state economy” that is more diverse than the economies in some other states, he said.

But no one will be ready to break out the champagne until the state’s rate drops a lot lower.

“We announce these rates as numbers, but they still involve people and families in our community,” McElroy said. “Even though the Minnesota rate is better than the national rate, it still is higher than we would like it to be.”

Sharon Schmickle writes about national and foreign affairs and science. She can be reached at sschmickle [at] minnpost [dot] com.

Comments (5)

  1. Submitted by Steve Titterud on 11/19/2009 - 12:19 pm.

    The almost-never-cited-in-the-media U6 unemployment number is another way to get a little traction on your “everyone else” category, described in a vague way in this article.

    Despite the fact that all these unemployment numbers are “funny”, there ARE regularly published BLS numbers available for your “everyone else” group, at least on the national level. Why not cite them? I’m just spitballing here, but why not see what U6 would be in Minnesota if the national rate is projected onto our state, to flesh out the picture?

    The BLS published a national U3 unemployment rate for Oct 2009 of 10.2%, and a U6 unemployment rate with the same scope of 17.5%. So, doing the math, U6 is about 172% of U3 in Oct 2009.

    If Minnesota’s U3 of 7.6% were in the same relationship as U3 to U6 nationally, it would mean Minnesota’s U6 is in the neighborhood of 13%.

    To me, this is a lot more useful than saying unemployment here is 7.6% plus “everyone else”.

  2. Submitted by Sharon Schmickle on 11/19/2009 - 12:39 pm.

    Steve, Are the U6 numbers publicly available at the state level? I’d heard the Legislature was working on that. Meanwhile, you can find a MinnPost discussion of the U6 here http://www.minnpost.com/steveperry/2009/02/04/6415/u6_the_unemployment_rate_and_the_misery_index. Check the comment too.

    Thanks for your interest in the story. And spitballing is fine with me. In elementary school, it made for a more interesting class. And that’s still true as far as I’m concerned.

  3. Submitted by Steve Titterud on 11/19/2009 - 01:42 pm.

    I can’t find U6 numbers for MN anywhere, that’s why I resorted to the extrapolation above.

    Tony Sertich of the legislature was author of a bill which would task the state to track these numbers, as I understand it. I looked in the legislative history and it appeared Pawlenty vetoed it. Maybe he felt we didn’t need to know the full extent of unemployment and underemployment?

    I followed Steve Perry’s economics articles, including the one you’ve cited, and I miss his references to U6.

    It seems to me U6 is under-reported, but then the BLS makes you work to find it. Whereas in their standard publicity releases, it’s U3, U3, U3 – you’ll find no mention of U6.

    U3 sure makes things look a lot better! But U6 may be a better indicator of pain.

  4. Submitted by Tim Nelson on 11/20/2009 - 04:34 pm.

    I watched Mr. James Galbraith (the younger) on Bill Moyers’ Journal, on PBS. He said that we should offer early retirement to guys like me.

    The youth of today, he says, need to be employed. A generation starting their working career on the dole is a tragedy, compared to the old farts like me making up the category.

    I think we could do this without lowering the age to receive social security, or medicare. I hope so, since making this temporary would be best.

  5. Submitted by Karen Sandness on 12/11/2009 - 06:35 pm.

    The “everybody else” also includes recent graduates of high schools and colleges who have not yet found a job, as well as owners of small businesses who have seen a significant drop in the number of customers. People who want to work full-time but can find only part-time work are another category that is not counted, since working one hour per week counts as employment.

    These people may not be officially unemployed, but they may be as financially strapped as the workers who have been laid off from companies.

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