10.08.2012 1

Magical unemployment rate of 7.8 percent

By Rick Manning — Believe it or not, somehow the unemployment rate number dipped below Obama’s self-defined 8 percent threshold needed for re-election.  The timing of this .3 percent drop in the jobless rate with just five short weeks before the election caused many, including Americans for Limited Government to wonder if the improbable timing was just coincidence or if it was political chicanery?

Let’s be clear.  It would be extremely difficult to manipulate the unemployment numbers.  The data is secured and protected because millions of dollars are made or lost on stock and bond markets all over the world based upon it.  So, altering it would not only be a scandal, but a felony that would land people in prison.

However, when improbable data is combined with political necessity, it would be irresponsible not to question whether the data is valid.

To determine whether the reported rate should be questioned, the first point is whether the data is improbable or even implausible.

.3 percent drops in the unemployment rate are not that unusual, and defenders of the data are quick to point this out.  In order to get this drop, the report shows that a huge number of additional people became employed in the month of September – 873,000 to be exact.

Yet, another aspect of the Employment Situation report issued by the same Labor Department’s Bureau of Labor Statistics measures how many jobs were created in the month.  With a huge number of new employees one would expect to find a robust growth in jobs created.  Instead of the job growth one would expect with the unemployment report, it was reported that only 114,000 new jobs were created.  Almost exactly what was expected by everyone who watches the economy.

This presents a seeming glaring contradiction within the same report by the BLS.

Some will explain that it is not unusual for these two numbers to diverge due to the fact that they are created using two different massive monthly surveys – one of about 50,000 households (the unemployment rate survey) and one of about 30,000 employers of all types (the job creation survey.)

The traditional correlation between these two surveys is that the economy needs to produce 150,000 jobs in a month just to keep pace with the number of new entrants into the economy.  The new jobs number of 114,000 falls well below this measuring stick calling into doubt a steady employment rate let alone a dramatically falling one.

Additionally, the Labor Department releases the number of new unemployment applications each week.  This comes from weekly state reports that are compiled and released each Thursday.  The report reflects both that weeks data and a four week rolling average as the data from a single week is viewed as volatile and less reliable.  The four week average on the Thursday prior to the unemployment report was 375,000 new unemployment claims.  The 375,000 unemployment claims has historically not been considered to be a number that indicated massive job creation, but instead is a middling number consistent with an economy that is, over time, creating about the same number of jobs as it is shedding.

This is strike two against the theory that there was momentous job creation resulting in 873,000 more people becoming employed last month that the previous one, both straight from the Labor Department itself.

Strike three is found in the actions on September 13, by Federal Reserve Chairman Ben Bernanke.

In the very same month that almost a million Americans were supposedly being hired, Bernanke declared the U.S. economic condition to be in such dire shape that he embarked on something called Quantitative Easing 3 (QE3).  QE3 is designed to stimulate the U.S. economy on a continuing basis for at least the next year by pumping $40 billion of new dollars a month into it.

Bernanke and his other Federal Reserve Governors have access to all of the most detailed information about the health of the U.S. economy.  They don’t rely on single data points, but have reports that monitor every aspect of our nation’s growth.  They knew that the U.S. economy’s overall growth rate declined to an anemic 1.3 percent in the second quarter of 2012, and based upon their actions believed that immediate action in the middle of September was needed to save the economy from slipping back into another recession.

What makes the September timing of the Federal Reserve actions even more significant is that the Fed has traditionally feared losing their independence and is very sensitive to accusations that the actions they are taking are more political than economic.  In fact, in 2010, the Fed resisted embarking on QE2, until just after the mid-term elections to avoid this appearance.

When the Fed chose to act less than two months before a nation defining presidential election, they put their independence and credibility on the line that the situation dictated immediate action.

It is reasonable to intuit that the Fed was not expecting an 873,000 increase in the number of employed, and if the BLS number is right, the Fed should immediately cancel QE3.

It also needs to be noted, that the unemployment report survey for each month is actually completed just after the middle of the month, with the rest of the time used for compilation.  This puts to rest speculation that the job growth occurred late in the month after the Fed’s decision, because it would have shown up in the October unemployment rate, not the September one.

These three reasons combined provide a powerful argument that the Labor Department contention that 873,000 more people were employed in September than in August is not credible.

The big question once you determine that the data’s veracity is extremely unlikely to be accurate is whether it was political malfeasance or merely a very politically convenient bad household survey for Team Obama.

Bad surveys happen.  Extremely infrequently, but it is possible to get a bad sample.  You could ask the same sampling question about the employer survey which showed only 114,000 jobs gained except its data fell in line with expectations based upon everything else going on in the economy.  It is the unemployment rate survey that is the outlier and hence the one subject to suspicion.

On Friday, I was pressed by a reporter on whether I believed that the unemployment rate had indeed dropped to 7.8 percent.  Finally, after consideration, I answered no.

In my heart, I want to believe that this magical drop was produced by a poor survey sample that just happened to occur at the most advantageous time for a president seeking re-election.

However, my brain doesn’t really believe in convenient coincidences.

This conclusion is devastating to me, because it goes to the very belief that our nation is better than third world potentates where data is manufactured, voting totals cannot be trusted and freedom itself is illusory.

I desperately want to believe that either the data was somehow right, or more likely, it was the result of a survey sample that went horribly wrong.  Now if I can just get my brain to agree.

Rick Manning is the communications director of Americans for Limited Government and is the former Public Affairs Chief of Staff at the U.S. Department of Labor.

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