By: Paul Sturgeon
Cincinnati-based KLA Industries Inc.
April 12, 2013
There has been a great deal of discussion over the past few years around the labor market, the unemployment rate, and so on. Most of it is at best uninformative, and at worst, just plain wrong. We are often left with a lot of data and very little information. In the next few paragraphs I will explain where all this data comes from, what it means, and in the end, tell you where to find the information you need to cut through the noise.
The unemployment rate you probably think of first is the one published by the U.S. Department of Labor's Bureau of Labor Statistics (BLS). It is based on a monthly survey of households around the country. About 2,200 Census Bureau employees collect this data each month. Based on this survey, people are classified as unemployed if all of the following are true: they do not have a job, they have actively looked for work in the prior four weeks, and they are currently available for work. It also includes people waiting to be recalled from a temporary layoff.
So we have interesting fact No. 1 — whether a person receives unemployment compensation has no bearing on whether a person is classified as unemployed.
If you were employed for pay at all during the survey week, even if it was for one hour, you are considered employed. Also, if you did at least 15 hours of unpaid work in a family-operated enterprise you are considered employed, which I think qualifies as interesting fact No. 2.
Over 41 percent of the U.S. population is considered neither "employed" nor "unemployed." If the person surveyed does not fall into either of those categories, they are included in a category called "not in the labor force." This would include retirees and students, but also anyone not seeking work outside the home for any reason. So the actual rate you hear announced, 7.7 percent as of the first of 2013, is calculated by dividing the
number of people "unemployed" by the sum of those "employed" and "unemployed." Right now about 12 million people are "unemployed" out of about 155 million considered in the workforce.
The BLS also puts out the weekly report of those filing new claims for unemployment benefits, which is considered a good leading indicator of the unemployment rate. This is also a good time to point out that all the data we talk about here, both governmental and private, are estimates and subject to later revision. Interesting fact No. 3 is that the initial weekly unemployment claims have been revised upward in 59 of the past 60 months. While curious, the revisions are typically not significant, and it is better to look at the four-week moving average of initial claims, which smoothes out a number of factors.
Another closely watched employment measure is provided by ADP Institute, a private company that is also the largest outsourced payroll service provider in the U.S. ADP gets its data from clients, and the numbers are based on actual non-farm, private-sector payroll data. While some consider this a more accurate measure than BLS figures, the ADP numbers are also subject to revision, and historically some of the revisions have been significant.
One other thing to keep in mind is that how markets react to the various data — which they always do — is based almost entirely on how the data compares to what analysts were predicting. So a weekly report of initial jobless claims of 350,000 could be good if analysts were expecting it to be 370,000, or bad if the number was anticipated to be 330,000.
As Plastics News recently reported, U.S. plastics industry employment did not decline in 2011 for the first time in a dozen years, and actually eked out a 1 percent gain. So what can we conclude about the direction of employment in the U.S. and the plastics industry?
While I believe all the published employment data should be viewed with a bit of skepticism, there are a couple things I would recommend that you look at closely. The first is the Institute for Supply Management's "Report on Business" for manufacturing. The ISM has been publishing this on a monthly basis for a long time, and it draws from 18 industries in the manufacturing sector. After a strong first half of 2012, this index has softened recently. We need numbers consistently above 50 in the first part of 2013 to indicate that the manufacturing economy can sustain its modest momentum.
The second thing to focus on is the Conference Board Leading Economic Index.
The Conference Board is a global, independent business membership that is a non-advocacy, nonprofit research association. Like ISM, the Conference Board has been compiling data for a long time, and it has 10 components, including unemployment claims, manufacturers' new orders, building permits and stock prices. While the index had been increasing in the latter part of 2012, the December numbers were weak, down 0.2 percent.
On a final note, when looking at the labor market, all data must be considered in light of the baby boomers. The megatrend of over 10,000 baby boomers turning 65 years old each day has been happening for two years now, and will continue for another 16 years. Given the vagaries of calculating unemployment, and this steady drain of skills from the workforce, you can make some sense of the seeming paradox that is relatively high unemployment along with a severe talent shortage.
Paul Sturgeon is a certified personnel consultant and the business manager at Cincinnati-based KLA Industries Inc., an executive search firm specializing in the plastics industry