Unemployment Numbers Are Deceiving

By Michael McCune
The economy will decide the 2012 election proclaimed political watchers last year. But what is the economy doing?

Unemployment numbers dropped once again! First time unemployment claims dropped to 352,000 it was reported Thursday. Wall Street is excited, Washington is jazzed, the liberals are excitedly hailing Barack Obama’s policies as the reason for this turnaround number but Main Street is lagging in the dust.

Wall Street should be leery, Washington should be ashamed and political policies have nothing to do with the drop; it is largely smoke and mirrors. The only real good news in the unemployment figure was employers are not cutting positions at the rate they have been in the past. This number has been consistently getting lower and lower since mid-2009. The problem is there isn’t any surge in hiring to offset the gain in population.

There is no denying unemployment numbers, the way Washington counts, are way down. This is mostly due to the fact American participation in the job market, as determined by the bureaucrats themselves, is way down. That’s why the unemployment report is losing its relevance in taking a snapshot of America’s economy as was usual during the 60s and 70s. Those non-participants are not being included in any of the published figures America has used so long to gauge the health of the economy.

Fewer than 2/3rds of all working-age Americans are actually counted as in the work force from 2010 Bureau of Labor Statistic figures, the lowest level since record-keeping began in the Great Depression. A whopping 36.4% of all work-eligible, non-institutionalized, breathing Americans are counted as not in the workforce by the BLS. This is why Americans can’t be putting too much stock in the unemployment rate as a positive sign.

If workforce participation was at 1960 levels, the unemployment rate would have been more than 10 points higher in 2010 and 12 points higher today. There will not be a “recovery” back to the 5-5.5% ‘norm’ in the unemployment numbers because as soon as jobs are created, many people among the 36.4% uncounted will become active by seeking work, pushing the unemployment rate higher again and appearing to slow the economy. That is one of the tricky parts of relying on raw numbers to assert a position for or against any political influence on employment.

The fact America has shed more than 10 million jobs in the last 12 years while adding 30 million to the population assures there will be no returning to the low, low rates had been accepted as normal between the conclusion of WWII and the onset of 1976. That is when the real number twisting started in Washington as it followed George Bernard Shaw’s advice of spoon-feeding bad news in acceptable doses. It doesn’t matter who is the President or which party controls Congress or the Senate, America will have to get used to those “uncounted” millions dragging at the economy and yet having their hands out for government contributions as it bolsters Washington’s power which is based on handing out money.

Effects from the implementation of National Healthcare hasn’t yet assaulted employers’ bank accounts either and that could become a real sticking point for continued hiring. Combined with uncertain tax rates and new regulatory obligations placed on employers the past two years, the implications for renewed hiring spurts are not good. Even if the current quarter or year is positive, employers are going to have to determine the additional costs associated with hiring another individual and what benefits can be gleaned from such a move. As long as the costs remain shrouded in mist from Washington decisions, employers are going to hesitate where five years ago they would have moved.

Employers may very well try to get around the hiring decision by using the independent contractor route they’ve utilized for more than 25 years with impunity. But Washington’s regulations are beginning to close that loophole as well. Employers could avoid costly benefit packages for those workers hired as contractors. One of the proposals under consideration is requiring the independent contractor to have more than one customer to be considered independent and followup suggested criteria is that no one employer can provide more than half of the contractor’s income (trying to stifle a ‘two-client’ contractor where one client was used just as a means to qualify as a contractor when the second client provided the only true source of income).

The fact first time unemployment claims are coming down is a good sign for the economy, the fact a significant portion of the population is no longer considered to “be in the workforce” is not. Taking the numbers for what they represent, and only what they represent in bureaucratic terms, will give a truer picture of the economic position of this country, no matter which political agenda you support.