On May 2 the U.S. Government, through the Bureau of Labor Statistics, released the Non-Farm Payroll numbers for April. They were terrific, the best one-month results since 2012:
“Total nonfarm payroll employment rose by 288,000, and the unemployment rate fell by 0.4 percentage point to 6.3 percent in April, the U.S. Bureau of Labor Statistics reported today. Employment gains were widespread…”
So everything is great, right? America is working again!
Right. And here is a terrific deal on a bridge I have for sale in Brooklyn.
Unreal Reality
The problem is that government unemployment statistics – and a bunch of other statistical reports, especially inflation and GDP numbers – may be technically correct (although there is lots of doubt about that) but they are so far removed from our common reality they bear no relation to normal life.
We don’t want to say this is deliberate. But government statistics become government propaganda pretty quickly, and the divergences from reality all tend in the same direction, toward a rosy but unrealistic assessment of the world.
The Non-Farm Payroll, for example, counts you as employed if you worked one hour in the month for money. Any work, any amount of money. If you had two part-time jobs, there are considered to be two of you, and both of you are employed.
And of course all of the numbers are massaged in order to remove “seasonal distortions.”
Not Unemployed; Just Jobless
But if you aren’t working, that doesn’t mean you are unemployed. It may mean (using a very generous definition) that you are simply “not in the labor force,” and therefore one of the approximately 37% of Americans – about 117 million people – who are not working, but who don’t get counted in the unemployment statistics.
When some of those people are added back in, the real rate – what the BLS calls the U6 rate – is 12.3%. According to Mish Shedlock, who tracks employment data obsessively at Mish’s Global Economic Trend Analysis, the real rate, properly counted, would be higher still.
The BLS calculates employment numbers based on two very large surveys, one of employers called the establishment survey and one of individuals called the householdsurvey.
The discrepancies between them are often vast. For April, the establishment survey produced the rosy headline numbers.
The household survey told a different story: number of people employed down – not up – by 73,000, and number of people who left the labor force up by 800,000.
In fact more people leave the labor force than find jobs every month.
Inflation Stats Are Worse
If your experience trying to get a job doesn’t match the official employment numbers, your experience with government inflation statistics will be Bizarro World.
The official rate of inflation – brought to you by the same optimists at the Bureau of Labor Statistics — is 1.5% for the 12-month period from March 2013 to March 2014, the lowest rate since 2011. (The current numbers will be released May 15).
You may have seen some tut-tutting in the financial press about the Fed worrying that inflation is too low (!) because the target rate should be 2% and when inflation is too low bad Things happen to the economy.
This is the stuff that makes the roses grow. The inflation rate, by any real-world yardstick, is not 1.5%. And deflation, or at least lower prices, may make Bad Things happen to some people, but not to ordinary citizens who actually have to buy stuff.
Crazy Calculus
Start with the way inflation is calculated. The prices of a number of goods and services are tracked over time, and changes in price are recorded. Then the changes are used to produce an overall inflation rate, the Consumer Price Index.
Sounds simple. It is simple. But inflation calculated that way would not produce the numbers governments like to see. So every Administration for two generations has introduced changes in the calculation, and all of the changes have moved in the same direction: to make ‘official’ inflation lower.
Shadowstats.com, a popular blog that tracks government economic reports, calculates that using the methodology employed in 1990, current inflation is about 5%. Using the 1980 methodology, the inflation rate is over 9%.
How The Numbers Are Rigged
Let me count the ways. The calculation considers ‘substitution effects.’ If beefsteak goes up in price, people are assumed to substitute hamburger. And as if by magic, the fact that beef has gone up in price means inflation has gone down.
There are ‘hedonic’ adjustments. Cars go up in price. But cars now have more bells and whistles. So even though the price is higher, the ‘value’ is increased. Voila! Inflation is down. (But if you buy a chocolate bar that has the same size package as last year but is 25% smaller, that is not deemed to be a price increase). There are adjustments in the goods and services being tracked: anything that goes up in price too quickly is said to ‘volatile’ and needs to be discounted. Food and gas are excluded from many of the calculations.
So when you exclude food, gas, anything that goes up in price too fast, anything that is more expensive but better in some way, and anything for which cheaper substitutes can found, inflation is too low and needs to be goosed a bit. Sure.
Who Benefits From This?
They do. You don’t. Lower prices make your life easier, make it easier to save for retirement, and make it easier to live on your pension when you do retire.
But a currency that is continuously losing value – down about 40% since 2000, using the rigged official numbers – is needed to pay off the staggering debt burden.
And by a happy coincidence the institution rigging the numbers – the U.S. Government in all its many manifestations – is the biggest debtor the world has ever seen. Funny how that works out.
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