Do You “Believe Your Lying Eyes” or Government Statistics

I suppose you can file this one under do you “believe your lying eyes” or government statistics.

The WSJ reports that, “Just eight states recorded a rise in the unemployment rate for November, signaling the pain in the U.S. labor market may finally be abating.” They published this chart from the BLS to support that thesis.

Now, consider this from Arizona State University economist Dennis Hoffman:

Arizona’s beleaguered job market won’t recover until 2014 or 2015 and many of the state’s jobless have left for other markets, according to a leading state economist.

Arizona State University economist Dennis Hoffman said Thursday at a conference in Paradise Valley that, despite some reports, Arizona ranks with the likes of Michigan when it comes to unemployment, decreased personal income and spending.

Arizona’s unemployment rate for October was 9.3 percent, up from 9.1 percent in September and 6.2 percent in October 2008, the Arizona Department of Commerce reported Thursday. Michigan’s latest jobless rate is 15.3 percent, according to the U.S. Bureau of Labor Statistics.

“Don’t be deceived by (Arizona’s lower rate),” Hoffman told the Economic Club of Phoenix. “Many of our unemployed have left the state.”

Now one more piece of data and then I’ll get to the point. Actually, this isn’t new data but a pictorial of the BLS statistics as presented by Daniel Indiviglio at The Atlantic:

To be fair, he doesn’t try and paint an overly optimistic case with these numbers but by the same token, he seems to take it as a sign of positive movement in the economy.

Now, it may be that the unemployment rate is telling a positive story or it might well be that, as the good ASU professor notes, it’s a statistical anomaly which masks the truth of the job market. At this point in time, absent some much deeper analysis, it’s probably relatively meaningless.

We do know that in the case of Arizona, it’s basically telling the wrong tale. Arizona is a state that has lost as many or more jobs than Michigan on a percentage basis yet its unemployment rate has consistently trailed Michigan’s. Dr. Hoffman explains this inconsistency by noting that the numerator of the equation has been diminished by migration out of the state. I would add, and this is purely based on anecdotal evidence, that many workers have migrated to the ranks of the underemployed and this too is working to distort the data.

Despite the data that indicates an improving job market, my conversations with contacts around the country indicate that for the average working stiff, life is still hardscrabble. I hear lots of tales of folks working for a half or a third of their previous incomes with life styles reduced to just getting by. Again, this is anecdotal but the story seems to be the same each time I hear it’s retold.

My take is that the unemployment rate is telling us little about the real state of employment and I suspect that might well apply to the broader U6 measure as well. By the same token, I think that the average Joe knows full well what is going on and doesn’t buy into the numbers. More to the point, they view the fixation in Washington politics on subjects such as health care, climate change and financial regulation as largely a waste of time. They’re looking at a bleak future while the ruling class fiddles around with issues that promise no relief and possibly worsen their lot.

The upshot is that the politicians who delude themselves into thinking that we are turning the corner on employment or try and delude their constituents with that argument are going to be talking to a highly sceptical audience. The longer this issue festers, the more likely there is to be a voter revolt and the more likely it becomes that unscrupulous politicians are going to put forth radical solutions. Populism, tariffs and all manner of ill-conceived policies arise from times like these.

Better to take these unemployment numbers with a grain of salt for now. The economy at present can’t provide meaningful employment to a much larger segment of the population than the official statistics suggest. We shouldn’t let the numbers delude us into thinking that the situation is any different than it is.