The Bureau of Labor Statistics non-farm payroll (NFP) report is often a market mover. But should it be?
Both non-farm payrolls and the unemployment rate can be very misleading. After all, as we’ve mentioned before, the Bureau practices “fuzzy math.”
Before I show you today’s chart, let’s agree on a couple of true/false questions:
1) If fewer light switches are in the ON position, then more light switches are in the OFF position. True or false?
2) If fewer people are working, then more people are not working.
True or false?
They’re both trick questions. What about the light switches that have dimmers? What about the people the BLS counts as neither “employed” nor “unemployed.”
Ahhh. There-in lies the rub.
Today’s chart shows two statistics. The orange line is the unemployment rate. This is the familiar metric that says, “8.2% of our population is currently unemployed.” The line is plotted inversely, meaning it goes up when the unemployment rate goes down.
The blue line is the percentage of the population that IS employed – call it the “employment rate.” This metric says, “58.5% of our population is currently employed.”
These two metrics seem like two sides of the same coin. And most of the time they act that way. Usually, when the unemployment rate goes down… the employment rate goes up.
But that all changed when we emerged from the 2007-2009 recession.
As you can see, the employment rate has been flat. In 2010, 58.5% of the population was employed. In 2012, 58.5% of the population is employed.
Yet, somehow, the unemployment rate has improved since 2010. It’s dropped from 10% to 8.2%.
So which metric do we trust?
We’re not fooled. We’d certainly feel more confident if the employment rate was improving. Regardless, the number of new jobs being created is too small to have any significant, positive impact on our economy.