Monday, February 07, 2011

The worst chart you'll see today



This chart comes to us courtesy of the St. Louis Federal Reserve Bank which has more data and charts than just about any other site on the web.

The percentage of the civilian population employed has plummeted in the last six months (despite the fact that the unemployment rate is still falling - I'll get to that in a minute) to levels last seen 25 years ago. At 58% of the population employed we are roughly where we were in the middle of the 1950's.

The more disturbing data to lay on top of this chart would be to include job type. I think while the employment ratio has been falling we're also shifting our jobs from high-end tech and manufacturing toward low-end service and retail. Ugh.

Regarding the falling unemployment rate from Friday, I really thought people would have caught on to this trick by now. Remember the unemployment rate is a fraction which has two components - a numerator and a denominator (number of unemployed divided by total population). If the unemployment rate falls many assume that the number of unemployed persons fell.

That's not necessarily true. Assume that 10 people are unemployed out of a population (employed + unemployed and looking people) of 100 people. Your unemployment rate is 10/100 = 10%. If next month 2 of these people just quit looking for work your fraction changes to 8/98 and tada! Your unemployment falls to 8.2%!!

This is what's happening in the US as hundreds of thousands of people are just disappearing from the employment data every month. There was likely a strong impact of weather in January, however, it should be noted that the data is strongly seasonally adjusted to take things like WEATHER into account and remember it only snowed in the Northeast. What about Seattle, Chicago, Dallas, San Franciso? We'll see some recovery in February as long as it doesn't snow again in the Northeast this winter :)

Cheers!

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