Unemployment rate falls in October surprise

President Obama, once the candidate of hope, has gotten a boost from despair. Photo: Associated Press

WASHINGTON, October 5, 2012 — President Obama, the man who pedaled hope four years ago, has had his reelection hopes boosted by despair.

It’s a common assertion that a president can’t be reelected with unemployment rates above 8 percent. that’s not true, of course. What hasn’t happened since the Great Depression isn’t precluded from happening in November. Even so, in the wake of his pathetic debate performance in Denver, Obama had to be thrilled to see unemployment drop below 8 percent. 

Were unemployment rates in the double digits or creeping ever upwards, Obama’s presidencey would end in January. They have not been, and for that Obama, never one to decline credit for that which he didn’t do, takes full credit. It’s the 4 million plus jobs he created through his stimulus package. It’s the reinvigoration of small business thanks to his tax cuts. 

No, it’s despair. 

Unemployment rates are calculated as a percentage of the civilian labor force. The civilian labor force inlcudes everyone of working age who isn’t institutionalized or in the military who has a job or is looking for one. 

That definition conceals a world of grief. Imagine, for instance, that you incarcerate a million black men between the ages of 18 and 35. What happens to the number of black men in that age group in the labor force? It drops, of course. And therefore so does the rate of unemployment in that demographic group. Don’t think of it as a war on drugs. Think of it as a war on black male unemployment.

Now consider the impact of keeping a new college grad unemployed long enought that he just retreats to his parents’ basement to play computer games. Unemployed? Not at all! Not in the labor force, hence somebody else’s problem. Galactic hitch-hikers recognize that as a practical form of invisibility.

Half of recent college grads are not working or are underemployed, working for instance as servers at Pizza Hut. Half are not unemployed, however. And neither are millions more who have been unemployed long enough to no longer count as unemployed. 

The rate of job creation in this administration has been too low to employ all the new workers who have entered the labor force. Therefore, if everyone in the country who has been ejected from the labor force by the statistical sleight of hand we use to get rid of them were counted in it, the unemployment rate would have steadily risen, not remained steady at just over 8 percent. 

We actually have a measure of unemployment that counts the underemployed and people who have been ejected from unemployment rolls because they took too long to find a new job. It’s called “U-6,” and it currently stands at 14. 7 percent. We have no measure that includes others who have simply abandoned the job search altogether in despair of ever finding a job, but estimates put that full unemployment rate at over 18 percent. 

Millions have simply abandoned hope of finding jobs and given up. Thus labor force participation is at lows not seen in 30 years. Despair has kept the unemployment rate down by keeping labor force participation down. It’s currently 63.6 percent.

The unemployment numbers released today are in some ways quite astonishing. The Bureau of Labor Statistics estimates that 114,000 new jobs were created in September, while the labor force grew by 418,000. That should have produced a slight increase in the unemployment rate, and economists had predicted 113,000 new jobs with an uptick of unemployment to 8.2 percent. That it in fact fell to 7.8 percent has led to widespread suspicion that someone has manipulated the figures. Former GE CEO Jack Welch tweeted, “Unbelievable jobs numbers…these Chicago guys will do anything…can’t debate so change numbers.” 

The Labor Department did revise the July and August job numbers upward. July’s rose from 141,000 to 181,000 - a hefty 29 percent revision. Given that estimating employment levels involves art as well as science, that isn’t entirely non-credible, but they do merit an uplifted eyebrow and are a wonderful October surprise for Mr. Obama.

Obama will claim that 7.8 percent unemployment is (relatively) good and a sign that he deserves four more years to pull the economy out of the really, really, super-deep ditch that the GOP drove it into (all on its own, while the Democrats were presumably focused on fixing old people nutritious meals so they wouldn’t have to eat Republican cat food). All else equal, a drop in the unemployment rate really is a good thing and a hopeful sign.

The fact that unemployment has been so flat for so long in spite of (anemic) job creation tells us that what predominates is not hope, but despair. Real hope about economic recovery would trigger a large inflow of people to the labor force, and that might cause unemployment to rise.

Viewed in their totality, numbers that include rising unemployment can be a good thing, but politics is about simple stories told simply, as by idiots to fools. We’re left in a situation in which a decline in the unemployment rate is for most people the whole story. Unfortunately, the story still isn’t a happy one unless you happen to be President Obama.


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Jim Picht

James Picht is the Senior Editor for Communities Politics and teaches economics and Russian at the Louisiana Scholars' College in Natchitoches, La. After earning his doctorate in economics, he spent several years working in Moscow and the new independent states of the former Soviet Union for the U.S. government, the Asian Development Bank, and as a private contractor. He returned to Ukraine recently to teach principles of constitutional law and criminal procedure at several Ukrainian law schools for a USAID legal development project. He has been writing at the Communities since 2009.

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