Interpreting unemployment data
Data relating to employment and unemployment are, in reality, two sides of the same coin. But like all statistics they can be misleading, if taken out of context. In addition, unemployment data has been manipulated by politicians in some countries to try and show a more upbeat picture.
US 'non-farm payroll' numbers are something of a fixation for the stockmarkets on both sides of the Atlantic. This is because they are viewed as an indicator of the pace of economic growth (or lack of it) in the US, still seen by some as the key engine of global economic growth.
Farm payrolls are excluded - hence the phrase non-farms - since they would impart an element of seasonality into the numbers, making the changes in the data misleading month-by-month. The data relates therefore to goods-producing, construction and manufacturing companies.
Quite where this leaves services companies (a big part of the US economy) or for that matter government and public-sector employment is unclear. Even so, the monthly change in non-farm payroll figures is closely watched and highly influential.
Like most statistics, it is generally revised in subsequent months, but it is the first release rather than the revision that normally attracts attention. The report of which the non-farm payroll figures are a part also includes an estimate of the trend in hourly earnings, and the unemployment rate.
Unemployment data generally is fertile ground for political propaganda. In the UK for example, one of the most commonly quoted (by politicians at least) measures for unemployment is the 'claimant count', which calculates those claiming benefit as a percentage of the number of claimants plus total workforce jobs available. It does not include, for example, the economically inactive who might also be looking for a job.
In UK data for September 2011, for example, the claimant count was 1.6 million, while the actual number of unemployed people was 2.57 million. Figures for inactivity might be viewed as even more alarming. The same data showed one in five of those aged between 16 and 64 as economically inactive. But this is equally misleading because it includes students, early retirees, and those who are out of work due to long-term illness.
What is significant is that internationally comparable measures of unemployment, such as those used by the International Labour Organisation (ILO), generally put UK unemployment significantly higher than is normally admitted to by politicians.
Back in July, the ILO unemployment rate for the UK is was 7.7%, roughly comparable with the 9.1% recorded in the US at the same time. But the claimant count rate was around 40% lower than this number. This difference has been a consistent for many years.
To be fair to the ONS, the UK's official statistics gathering body, it now puts the ILO rate at centre stage in its releases, making rather less of the claimant count rate than was the case previously.
How you interpret data like this is another matter.
Rises in unemployment as generally construed as good for bond markets because they mean that inflationary pressure in the economy is that much less, even though higher unemployment means lower tax revenue and higher public spending costs. In any case, at current levels inflationary pressure is more likely to come from import costs rather than wages being pushed because the labour market is tight.
Only when unemployment rates get down to around the 2-3% mark do economists start worrying about so-called 'cost push' inflation emanating from the labour market. That has not been present in the UK for many years, and is unlikely to be much a problem for the foreseeable future.
The greater problem is often seen as structural unemployment, which is caused by a mismatch of skills in the economy (too many shipbuilding workers and not enough IT specialists or plumbers) which in turn can be laid at the door of inadequate training, and a lack of emphasis on apprenticeship schemes and other forms of vocational training.
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