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In a blog post this past November 2013, this writer offered a contrarian analysis of the October 2013 government jobs report. That report indicated a jobs gain of 204,000 for October. While others heralded the number, claiming it was evidence that the US jobs market had (yet again) ‘turned the corner’, this writer forewarned the October job gains would prove temporary. My contrarian view was that the October job gains reflected a temporary surge in 3rd quarter U.S. GDP, which was itself based largely on a short term surge in business inventory accumulation that Qtr., with a lagged October hiring effect. The October jobs numbers were therefore “nothing to get excited about” and “can disappear quickly from the economy and may in fact do so by December should consumer spending come in well below expectations.” (see my ‘False Positives’ piece on this blog, of November 12, 2013).

It appears that ‘disappearance’ is what has happened, as last week’s December jobs report showed a net job gain of only 74,000. So what’s going on?

Last month’s jobs report shows not only that job creation has relapsed once again, but that weak job creation is not the only problem with the US labor market. While only 74,000 jobs were created, the labor force in the US shrunk by a further 347,000 workers in December as well. Hundreds of thousands of workers have been dropping out of the labor force in recent months. Both indicators—weak job creation and massive labor force exiting—reflect a labor market in deep trouble still, after nearly five years of so-called recovery.

The 347,000 exits from the labor force in December follow another, even greater exodus of 700,000 in October. Even if half of that number may be due to the government shutdown event of that month, it’s still another 350,000 exits. What the last three months shows, therefore, is that at least as many workers are leaving the labor force, as there are jobs are being created. A kind of a ‘churn’ is therefore taking place.

During the first six months of 2013, about two thirds of all the jobs created were ‘contingent’ jobs—i.e. part time and temp jobs—paying well below the average hourly rate. So in the first half of 2013 another kind of ‘churn’ was also taking place: full time jobs were being lost while part time and contingent jobs were being created. That also meant that higher paying jobs were being replaced by lower paying—a trend that has been going on for several years now.

That contingent hiring trend in the first half of the year has moderated somewhat in the second half of 2013, and replaced by the new trend of an accelerating exodus of workers from the labor force.

So it is not just stop-go, month to month job creation , but low-paid contingent job creation, and the massive number of workers leaving the labor force that together represent the major defining characteristics of the US labor market over the past year. It’s not a pretty picture.

The fact that between 700,000 and 1 million workers have left the labor force in just the last three months makes the unemployment rate as an indicator of the health of the jobs market an irrelevant statistic. Because of the way the US erroneously calculates the unemployment rate, a massive drop in the labor force results in a convenient fall in the unemployment rate. Those who leave the labor force are not included in the determination of the unemployment rate. They may be jobless, but aren’t included as unemployed in the government’s oxymoronic method for calculating unemployment. Consequently it is the mass exodus—not a big increase in actual jobs—that is lowering the unemployment rate.

Most serious economists know the unemployment rate is misleading, and don’t put much trust in the unemployment rate as an indicator. They supplement it by looking at other indicators: job openings, turnovers, quit rates, average work week, jobless claims, duration of unemployment, etc. But most of these are short term indicators, and can be volatile and unpredictable month to month.

A better indicator of the long term declining health of the US labor market is the labor force participation rate, and the related employment-to-population ratio. They show how well the US economy has been producing jobs longer term and as the population grows. And both these indicators continue to show a deep malaise in the US job market.

The labor force participation rate has steadily declined for years in the US, starting before 2008 and accelerating after. In June 2009, the declared official ‘end’ of the current continuing recession for the bottom 95% of us, the civilian labor force in the US totaled 154,926,000 workers. This past December 2013 the total labor force was 154,408,000. At first this appears as if there’s been no change in the labor force. However, one must include in this the estimate that, on average, about 100,000 to 150,000 new workers enter the labor force each month. Taking the low end 100,000 figure, it means in the four and a half years since June 2009, no less than 5.4 million workers have left the labor force. (100,000 x 12 months x 4.5 yrs). That’s about the same number of jobs created in the 4.5 year period.

In June 2009 approximately 139,800,000 workers were employed in the nonfarm labor force in the US. In December 2013, that number had risen to 144,400,000. So about 5 million new jobs have been created in the past 4.5 years, averaging 93,000 a month, while about 100,000 a month on average have also been leaving the labor force. (Numbers for both the labor force and nonfarm jobs above are from the US Labor Department’s ‘Current Population Survey’).

What we have therefore is a ‘great jobs churn’ going on in the US labor market since 2010—new entrants coming in at low pay, often contingent, service jobs while roughly the same number of workers leave the labor force who were once higher paid. And because the labor force drop outs aren’t counted as unemployed, it appears as if the labor market is improving since the unemployment rate is declining.

The December picture is even more dismal than the numbers above indicate. Both the 74,000 jobs and -347,000 drop in labor force that occurred in December 2013 are ‘statistics’. That is, they are not the actual numbers. Statistics are manipulations on raw data and actual numbers. They are ‘operations’ on the data, in most cased designed to smooth out the swings and fluctuations in the raw data that occur due to seasonality and other factors.

The raw data on jobs created and labor force exits for December show an even worse picture than that reported by the ‘stats’. The raw data show total nonfarm jobs actually fell by -246,000 instead of growing by 74,000, and the labor force declined by -502,000.

Whether statistically smoothed or the actual raw data, the jobs numbers for December were disastrous. Some argue the abysmal December numbers reflect a correction to the excessively high, 200,000 plus numbers for October and November. Others argue that the bad December numbers result from bad weather. But weather metaphors aren’t an explanation; they are an excuse for those without an explanation for what’s going on. And if the US government is consistently that inaccurate estimating jobs month to month—i.e. widely over-reporting one month and under-reporting another—then that should raise red flags about its methods to being with.

It may very well be that the Labor Department’s established methodologies for estimating jobs are today out of whack and unable to account for the fundamental changes in the labor markets that the recent deep recession has caused—such as the accelerating rise of contingent labor, the massive swings and exits from the labor force, the shift of millions from employment to disability insurance, a growing urban shadow economy that is misestimated in terms of jobs, methods for accounting for new business formation effects on job creation, the diversion of job creating investment from the US to offshore emerging markets and/or into financial asset speculation, the hoarding of trillions in cash by big multinational corporations, the increasing job displacement effect of capital investment, the negative effects of expanding free trade on jobs, and so on.

All this is not to say the December job statistics are purposely ‘falsified’ by the government in some conspiratorial fashion. The methods are perhaps just outdated. The Labor Department does report the raw data for jobs, for example. It is just that the capitalist media simply chooses to report the less severe statistical data as the sole ‘truth’, ignoring the raw data, and saying nothing about how changes in the real economy may be undermining the accuracy of the old statistical methodologies. Or the press hypes the weather as the cause of the poor job numbers, or suggests temporary technical factors are responsible.

However, neither technical factors nor bad weather are necessary to explain the poor December jobs numbers. In my initial ‘False Positives’ piece written in early November, it was suggested that the big surge in 3rd quarter 2013 GDP in business inventory accumulation likely explains much of the lagged big surge in October-November jobs. Business bulked up on inventories in the 3rd quarter, in what has proven to be an erroneous expectation of a big consumer spending surge over the recent holiday season. The production of those inventories, and expectations of follow-on retail sales in the closing months of 2013, explain the brief hiring surge in October-November—as well as the subsequent sharp slowdown (seasonally adjusted) or actual decline (raw data) in December jobs. The ‘False Positives’ piece predicted that the anticipated retail sales at year end would not follow the 3rd quarter inventory buildup—and that would all result in a major reduction in job creation by December.

Data for December just reported show an overall growth of retail sales of only 0.2%–which is a decline from a prior, already weakening, November number of 0.4%. In fact, retail sales have been consistently weak since the September ‘back to school’ event. Sales have slipped ever since. Sales this past holiday season were the worst since 2009, according to a ‘Market Watch’ business research review of the data, as of the week ending December 28.

At the heart of the December slowdown in retail were auto sales. Autos have been the major force holding up consumer spending throughout the past year. However now it appears the US auto market, after several years of historic discounting to boost auto sales, is now becoming relatively saturated. For example, GM’s auto sales declined 6% in December from the prior year and its truck sales even more.

While others note that non-auto retail sales rose in December, non-auto sales also reflected weak economic conditions as retailers introduced large discounts in the final weeks of the monthas it appeared consumers were reducing their expenditures. Those discounts will soon result in lower retail profits, and in turn therefore disappear in January-February 2014. Thus both autos and non-auto retail are therefore set to slow or even decline in coming months. In turn, the job creation picture could weaken still further in early 2014.

To summarize, what lies behind the December jobs slowdown, and the accelerating exodus of jobless workers from the labor force, is the likely pullback in business inventory spending at year end and the weak prospects for retail sales. Hiring slowed significantly at year end, and many of those that were hired in the fall—as inventories bulked up and big retail sales were anticipated—will soon be laid off once again.

Entering 2014, the picture will likely be one of further retreat in business inventory accumulation, more softness in retail sales, fewer hires, and a continuing slowdown in auto sales, and in turn fewer hires and more layoffs.

But the raw jobs numbers for early 2014 may be ‘smoothed out’ once again by the statistical changes forthcoming in early 2014, as the government is scheduled to change its ‘benchmarks’ for estimating jobs that could ‘statistically’ boost jobs by several hundred thousand. That statistical adjustment could effectively ‘drown out’ a continuing weak jobs creation picture when measured by the actual raw jobs data. It may appear the jobs picture is not as bad as it actually is in fact—when the raw data will show otherwise. But you won’t hear that from the mainstream press.

Jack Rasmus is the author of the book, ‘Obama’s Economy: Recovery for the Few’, Pluto press, 2012 and ‘Epic Recession: Prelude to Global Depression’, Pluto, 2010. He is the host of the weekly radio show, ‘Alternative Visions’, on the Progressive Radio Network. His website is www.kyklosproductions.com, his blog, jackrasmus.com, and twitter handle, @drjackrasmus.