Economics

Pundits are trumpeting the huge jump in job creation – an unexpectedly high 244,000 jobs that mysteriously appeared duringthe month of April, with 268,000 of them in the private sector.  (Government payrolls shed 24,000 jobs in April.)

But try this one on: at the same time, the unemployment rate rose for the first time since November.

How can this be?  Simple: neither number is an actual count of anything.  Rather, both numbers are the result of surveys of a tiny number of employers and households, respectively, extrapolated to project the real number for the entire country.  Explains Deseret News:

To calculate the unemployment rate, the government calls 60,000 households and asks people if they’re working or looking for a job. This survey includes the self-employed, farm workers and domestic help — people not counted in the payroll survey.  By contrast, the government surveys about 140,000 businesses and government agencies to determine the number of jobs added.

There are over 105 million households in the U.S., so the survey samples 0.06% of them.  There are about 8 million private employers.  I have been unable to find out how many government entities there are, but this makes the survey sample about 1.8% of the total number of private employers.  From these two minuscule samples come the figures on which momentous economic decisions are made.

Meanwhile, initial jobless claims rose to an 8-month high of 474,000 during the last week of April. Adds the Star-Ledger in New Jersey (the state hardest hit),

The increase came as a surprise to economists, who had expected claims to drop.

Uh-huh.  My assessment: the analysts have no idea how employment is doing.

Inflation: In 2001, 10 million Turkish Lira was worth about $6.

From the Wall Street Journal:

The U.S. dollar’s downward slide is accelerating as low interest rates, inflation concerns and the massive federal budget deficit undermine the currency. With no relief in sight for the dollar on any of those fronts, the downward pressure on the dollar is widely expected to continue.

This was of course predictable (and predicted).

What currencies are gaining against the dollar?  The ones raising their interest rates to combat inflation.  Duh.

Bread line, 1930s.

“Unemployment Insurance played a major role in Utah’s economy this year with an average unemployment rate of 6.71 percent during the program year from a low of 6.0 percent to a high of 7.3 percent.” –Utah Department of Workforce Services Annual Report

Utah’s unemployment claims skyrocketed, with the number of new claims filed 2009 and 2010 b0th more than triple the 2007 figure.  This year, an employer that had no claims saw the UI contribution rate double – to 0.4%.

“California processed the most claims of the 50 states with 3.8 million in regular UI claims in 2010, doubling the second highest state of Pennsylvania…” -Employment development Department Press Release

California’s unemployment claims also skyrocketed, with new claims tripling compared with 2007.  The 2011 UI contribution rate for a business with no claim history increased slightly – to 1.5%, almost 4 times that of Utah.

California’s paid $23 billion in unemployment benefits in 2010, about 0.1% of its GDP.  Utah paid $463 million in unemployment benefits last year, about 0.4% of its GDP.

Yet despite the higher level of UI taxes and lower level of UI benefits as compared with GDP, California’s Unemployment Trust Fund became insolvent in January 2009.  Utah, on the other hand, maintains the 4th largest unemployment trust fund among the 50 states.  California’s predicament has been the subject of national debate, since it has borrowed more from the fed than any other state towards its UI benefits.

How is it that California, with its higher UI taxes and lower benefits as a percentage of GDP can’t keep its fund solvent?  The answer isn’t in the rates, but in how they are applied.   Despite its average wage (in 2008) of $51,487,  California employers only pay UI taxes on the first $7,000 in wages per employee.   Utah on the other hand charges UI taxes on wages up to $28,300 per employee with an average 2008 wage of $37,980.  So Utah employers pay UI taxes, on average, on 75% of wages paid while California only pays on 14%.  Even with its higher UI tax rates, California collects a much smaller proportion of wages for its UI fund.

And because California charges a higher rate on a smaller slice of wage income, it costs a California employer more to hire a low wage or part time worker than it does to hire a higher paid worker.  For example, UI tax on two employees earning $7,000 per year ($14,000 total) would be $210, while UI tax on a single employee earning $14,000 would be just $105.  And since the marginal cost of giving a raise to a higher paid employee is less, higher-paid employees are more likely to get raises.  California, so often known for its “socialist” tendencies, actually has a far more regressive UI system than the perennially-red state, Utah.

Bread Line, New York 1930.

Huffington Post lists the ten best and worst cities by unemployment rate for the month of February, the most recent available.  The top five:

1. Lincoln, Neb. 4.2
2. Bismarck, N.D. 4.6
3. Ames, Iowa 4.7
4. Iowa City, Iowa 4.7
5. Fargo, N.D. 4.7

Also in the top ten: Honolulu, Portsmouth NH, and Burlington VT.

Eight of the ten worst unemployment rates are found in cities in California, with El Centro topping (bottoming?) the list at 26.9%.  The two non-California locales were Yuma AZ and Ocean City NJ.

“I have been without a job for four months now and have been able to keep up with buying food for my pets until now. I will have money on the 20th of this month but am out of food for my cats and dogs. Does anyone know where you can get food or does anyone have anything other than Ol’Roy that they could share? I know times are tough but I only need to hold out until the 20th. Anything will help. Thank you, and God Bless!” –Ad in today’s Cedar City Freecycle*

Meanwhile the IRS released individual tax return statistics for 2009 and compared them with 2008.  Highlights:

• Adjusted Gross Income fell 6.9%
• Taxable income fell 9.3%
• Wages fell 3.7%
• Business income dropped: sole proprietorship income dropped 4% while partnership and Subchapter S corporation dropped 9%.  The number of tax returns including these items increased slightly.
• Unemployment income increased by 91%, with 19% more taxpayers reporting unemployment benefits.
• Capital fell by 41%.  This accompanied a 33% drop in the Dow Jones Industrial Average.  But 41% fewer taxpayers reported gains or losses, suggesting that the drop primarily was caused by less selling.
• Tuition and fees deducted dropped 47%.

There’s more, but you get the idea.

I decided to compare my family’s AGI for 2009 and 2010.  Compared with 2008, our 2009 AGI dropped 54% and our 2010 AGI dropped 86%.  We’re hoping for a better year in 2011.

(Thanks to my friend and reader Sue for the tip!)

* Presumably the poster of the ad did not want the Wal-Mart brand Ol’Roy because it tends to cause flatulence in dogs…  I guess you have to be pretty desperate for that.