Josh Elliott-Traficante

October 2012

The official unemployment rate has come under fire as of late. The past year has given rise to the charge by many that the unemployment rate under represents the true state of unemployment. Many have cited the U-6 rate which is currently around 14.0%. (For a description of the different rates, click here) The recent drop in the unemployment rate to 7.8% in September brought charges of manipulation for political motives.

While it seems highly unlikely that the Bureau of Labor and Statics is deliberately ‘cooking the books’, there is something to be said about the under representation of the true state of unemployment. This is not to say that the Bureau is doing this on purpose, but rather it is a symptom of the sluggish recovery that is not captured in the data. (For an explanation of the disconnect click here.)

As the recovery of the past two years has only been tepid, at best, a number of individuals have dropped out of the workforce entirely, because they think that they cannot find work, so they do not bother trying. Under the current method of calculating unemployment, these people do not exist. Despite not being counted, they are still unemployed.

However, there is a way to capture these group and project what the unemployment rate would be, were they counted as unemployed. Using historical baselines, thereby only counting those not in the workforce due to the recession, it is possible to calculate the unemployment rate if they were included. When this is done, the unemployment rate for September would be 9.0%.

Below is a chart comparing the revised rate to the official unemployment rate:

The difference between the two rates grows slowly, albeit steadily as the recession began, only to widen drastically by early 2009. As the recession bottomed out and the slow recovery began, this spread has grown only wider to the current 1.2% point spread in the September data.

Though there is some wiggle room in the revised rate (see Methodology below), this is decently accurate way of incorporating those not in the work force, for reasons realistically attributable to the recession, into the unemployment rate.




In addition to counting those no longer in the workforce, the BLS also counts those no longer in the workforce, but want a job. Currently this subset stands at roughly 6.7 million. Looking back at the historical data, we find that even in good times there are people who fall into this category, for whatever reason.

The running average for this group of people between 2000 and the end of 2007 was just over 4.7 million. This subset remained within a fairly narrow band of the average; 96% of the monthly data points were within one standard deviation of it. In other words, during both the recession of the early 2000s as well as the recovery that followed, the total number of people who were not in the work force, but wanted a job, remained fairly consistent. This consistency over 8 years is key, as it gives the perfect baseline.

Using that 8 years’ worth of monthly average as the pre-recession base line, that number is then subtracted from each following month’s reported number of those ‘not in the workforce, but would like a job.’ The resulting difference is (attributable to the recession), is then added back into the labor force data for the month, as well as the total number of unemployed. These revised numbers now include those unemployed persons who have left the workforce due to the recession. The numbers are then divided, resulting in the revised unemployment rate.


x = Number of persons reported as “Not in the Workforce, but would like a job”

y = Revised Number of persons reported as “Not in the Workforce, but would like a job”


x – 4.714 million = y

                y + Total Number of Persons in Labor Force

——————————————————— = Revised Unemployment Rate

               y + Total Number of Persons Unemployed


Accounting for one standard deviation in either direction from the average of 4.7 million, yields only minor changes, a testament to the lack of movement in the data. Taking this into account, there is a band +/- .2% points above and below the revised rate.

Today the Bureau of Labor and Statistics released the September Jobs Report, which saw the unemployment rate drop to 7.8%. Like all of our previous Monthly Jobs Report analyses, we take a closer look at the data beyond the unemployment rate. Below are this month’s takeaways:

1.      All of the metrics show modest improvement

Looking at all of the data points we’ve looked at for past analyses, modest gains have been made across the board. The total number of unemployed persons has gone down, as has the number of people who have left the workforce due to economic reasons. Likewise the total number of people employed has gone up, as has the total civilian labor force. This means that people are not merely shifting out of the workforce, thus improving the other data points.

2.      Workforce Participation Rate increased by .1% to 63.6%

Though an improvement over the record low set in August, this key rate has been skipping along the bottom for the better part of this year. Rates have ranged between 63.9% and 63.5%. In comparison, at its height before the recession began, it was 66.2%.

If this rate begins to climb in a meaningful, and more importantly a sustained way, it is a sign that the public believes that there are jobs available and will rejoin the workforce. Given the length of the recession, millions have dropped out of the labor force and a jobs recovery without bringing them back in would be a hollow one.

3.      Both sides will try to spin this:

This close to an election, these numbers will inevitably be spun by both parties and below details how each side is wrong:

The Democrats: They will try to hail this as a monumental improvement, particularly in that the rate has dropped below the politically important 8.0% threshold. Granted gains have been made in key areas, but they are minor ones at that. Likewise, one marginally good Jobs Report does not a trend make. While it is true that it has dropped below 8%, it is critical to remember that the size of the Civilian Labor Force, used to calculate the rate, is at historical lows. This drop is not due to the baby boomers retiring, but rather people leaving the workforce entirely. If you were to include those in the unemployment rate, taking into account historical baselines, the unemployment rate would be 9.0%.

The Republicans: A number of individuals have already come out and said that they are convinced that ‘the books have been cooked’ or something to that effect. There is nothing in the data that seems to suggest any manipulation of the numbers for political gain. However, given the fact that the report indicates 873,000 jobs being added, while the payroll survey indicated 114,000 does raise eyebrows. The last time the economy added that many jobs was in 1983, when GDP was growing at 9.3%, versus the 1.3% we are seeing now. In addition, several economists have suggested that it was the result of an improbable statistical quirk. Payroll data aside, the rest of data does show marginal improvements in key areas, so this report is indeed good news, albeit marginally so.

According to preliminary data from the Bureau of Labor Statics, New Hampshire’s unemployment rate increased from 5.4% to 5.7% for the month of August.

As with the national unemployment rate released by the Bureau, the unemployment rate is only one of many data points published in the monthly jobs report. The data not commonly discussed in media reports however, often tells more about the true nature of the jobs market than the unemployment rate alone does. Following in the model of our analyses of the national jobs reports, below are three takeaways from the New Hampshire report:

1) Unemployment has risen from 5.0% to 5.7% since May.

This increase represents the loss of roughly 1000 non-farm payroll jobs. With a total of 626,000 employed, this is the lowest level since October of 2010. Since the beginning of the year, the state has lost roughly 3700 jobs. Compounding the job loss is the decline of the Civilian Labor Force, one of the data points used to calculate unemployment. This point is expounded below.

2) Only 2 sectors saw payroll growth, most declined or stayed flat.

The Bureau divides job types into 11 broad categories and tracks the monthly change in the number of those employed in each sector. Over the time frame of May to August where the .7% increase occurred, only two sectors grew, Financial Activities, which added roughly 500 jobs and Government which added 1700. Several sectors remained flat, while Construction and Manufacturing each lost 700 jobs a piece, Professional and Business Services lost 800 while Education and Health saw the greatest loss with 2400 jobs being cut. It is also important to keep in mind that remaining flat is almost the same as decline with the natural growth of the population is taken under consideration.

3) The New Hampshire’s Civilian Labor Force has Fallen Back to Recession Lows, Mirroring National Trends

The Civilian Labor Force, after having grown every month from its lowest point in June of 2011 has now returned to those lows. Since peaking in May, the Labor Force has fallen by more than 5000. Though New Hampshire is a greying state, the size and speed of the drop cannot be attributed to retirements or other demographic trends. Rather, it is indicative of people dropping out of the labor force all together, having given up looking for work. This recent dip indicates that there the level of confidence in the recovery is falling.

According  to the foreclosure tracking firm RealtyTrac, New Hampshire saw 688 foreclosure filings for the month of August, which was slightly higher than previous month.

For August, one out of every 894 residential dwellings in the state received a notice of either bank repossession or foreclosure auction, better than the national average of one in 681. While New Hampshire is doing far better than the national average in terms of foreclosures

157 dwellings in foreclosure sold were sold in August, leaving a total of 4,026 still on the market

RealtyTrac also tracks foreclosures at the local level as well and looking at the 3 major cities of the state, we see that they follow the trends of the state as a whole:

Manchester saw 76 new filings, with 22 sold, leaving 337 on the market. Nashua had 39 new filings, with 11 sold, with 222 still up for sale. Finally, Concord (including 03303 overlap) saw 9 new filings, 6 houses in foreclosure selling and 83 remaining unsold.




Charlie Arlinghaus

September 12, 2012

As originally published in the New Hampshire Union Leader

What you think you know is often wrong. We are bombarded in election season with facts that aren’t facts and conclusions that are so convenient to our worldview that checking them against the facts would be inconvenient.

More important to most people is starting with the conclusion we have and then accepting the theory that confirms what we already believe. After all, if it agrees with me it must be true because I can’t possibly be wrong.

Today’s papers will be full of election news, so I had better start with election examples or you won’t bother reading. Nowhere does the truth take longer holidays than in election analyses. Pollsters who show our candidates winning are obviously correct, but if my guy is down then the pollster is obviously a biased charlatan.

This is very common right now in the presidential race. The President (of whom I am not a fan) is leading in most polls. The average of recent polls posted on shows the President ahead by 3.1 points. I have friends who are eager supporters of the other guy (Romney is his name, in case you haven’t been paying attention) eager to dismiss some polls or even every poll.

The theory is that the polls have a biased sample. “They oversample Democrats and get a biased result.” Respondents self-identify and in quite a few polls self-identified Democrats outnumber Republicans by 4, 5, or 6 percentage points. “That’s ridiculous,” I’m told. “2008 was D+7 but that was unusual. The sample should be roughly even. So if a Democrats-plus-5 poll shows Obama plus 3, it means Romney wins by 2.”

I’m not vouching for that logic, but it always annoys me that my whining friends can’t tell me what the historical average is even though they are certain it should be moved in their favor. So I looked it up.

According to exit polls, self-identified Democrats outnumbered self-identified Republicans by 7 points in 2008 (39-32). The annoying class is right that 2008 was above average for Democrats and that 2004 was an even split (37-37). However, both years are atypical. The four elections before 2004 had self-identified Democrats with either a 3 or 4 point edge. Interestingly, Independents remained steady nationally at 26 or 27 percent of the electorate except in 2008 when they bumped up to 29 percent.

So that crazy pollster with a slightly Democratic-leaning sample by 5 points is off the historical average by maybe 1.5 points. Hardly ridiculous. Nor need it be. If your guy is up or down by three points with eight weeks to go, the race could go either way.

The next polling myth is the incumbent rule. We all “know” that if an incumbent in a big race is below 50 percent he’s in trouble because “undecideds will break heavily against the incumbent” or “they’re not undecided about him.” This is well known and oft repeated. It’s also wrong.

Nate Silver writes a terrific blog called fivethirtyeight for the New York Times. I’m quite right-wing and he’s quite left-wing but (and here’s the lesson if you’ve been waiting for it) he runs numbers and does factual analysis that is very good even if you’re happy when he’s sad or sad when he’s happy.

So he looked at the incumbent rule to see if candidates under 50 percent with a month to go had troubles. They didn’t. On average, an 8.1-point lead turned into a 7.2-point victory. Undecideds broke only very slightly against them. However, if your guy is down 6 points to an incumbent, I’m sure the math will be different for you.

I use these two election samples not to rain on your parade, but to warn you to check the numbers before you believe generalizations in politics.

Ronald Reagan slashed spending. No. Spending under Reagan increased 6.7 percent each year. OK, but that was all defense spending. No, non-defense spending went up 6.1 percent each year. By contrast, spending over the next 10 years is projected to increase by 4.4 percent.

Supposedly the “Ryan budget” also slashes spending. Again, no. Spending would increase over 10 years from $3.5 trillion to $4.9 trillion under that supposedly radical alternative. The average annual increase would be 3.2 percent instead of the projected 4.4 percent.

This has been an election season message urging you to ignore the whining and check the data yourself. You might find that what you think is true isn’t.

Today the Bureau of Labor Statistics released its August jobs report, which showed that the unemployment rate dropped from 8.3% to 8.1%, and payroll grew by 96,000.

Economists had predicted somewhere between 120,000 and 140,000 jobs, with a growth of 150,000 jobs a month needed just to keep up with natural population growth. However, despite the poor job creation number, the overall unemployment rate went down. Why? It all has to do with how the rate is calculated and who counts as unemployed.

While unemployment rate dropped, the underlying data indicates that it was not due to more people being employed, but rather discouraged workers dropping out of the labor force and thus not being counted in the official rate.


1)      Work Force Participation Rate Drops to Lowest Level since 1979:

As noted in earlier analyses of the jobs report, the labor force participation rate has dropped precipitously in the past few years. The participation rate fell from 63.7% to 63.5%. The last time it was this low was under the Carter Administration. That .2% difference translates to more than 350k people no longer considered part of the workforce. In other words, they are no longer looking for work. One might think that this drop is at least partially due to the aging baby boomers, but as pointed out here, more Americans over the age of 60 are in the workforce than ever before.

So why is this important? A drop in the labor participation rate can mean any number of things, such as an aging population (which has already been dismissed as a cause) or people are leaving the workforce due because they think the job market is so bad, there is no chance of them finding a job. The decoupling of the different unemployment rates detailed here indicates that this is the case.


2)      The Total Number of Employed Persons Dropped by 120,000

In addition to reporting the raw number of unemployed people, Labor Statistics also reports the total number of employed people. Despite 96,000 jobs being created, the number of people employed actually fell for the month of August. This means that only 236,000 more people are employed now than were employed in April.


3)      The Number of People Not in the Labor Force but Wanting Jobs Jumps by 400,000

It stands to reason that the large majority of those who dropped out of the workforce last month contributed to this jump. These people however, are not included in the official unemployment rate because the official unemployment rate does not include those not actively searching for work.

If all of those not in the labor force, but wanting jobs were included in the unemployment figures, the rate would be 12.6%, an increase of .1% from the July figures.

Joshua Elliott-Traficante

September 2012

The New Hampshire Retirement System’s 0.7% investment return for fiscal year 2012 was jumped on by some as a sign the system had failed because it had not met the assumed rate of return of 7.75%. As pointed out in an earlier piece[1], for FY12, the System’s returns were about par for the course in comparison to other state pension systems.

Taking a wider historical view, this is true both in comparison to the stock market as a whole and in comparison to other pension systems.


The NHRS and the S&P 500: A Historical Look[2]

Below is a comparison of the rates of return, by fiscal year, for the NHRS and the S&P 500. It is not a perfect fit for the NHRS, since the System’s assets also include fixed income, foreign stocks and real estate, among other financial instruments. However, domestic equities make up roughly 40% of the portfolio.



Generally speaking, investment returns follow market trends. Investment return data shows that the NHRS tends to outperform the S&P, particularly in the bad years. From 1990 to present, the S&P has averaged a return of 7.69%, where the NHRS has seen 9.29%. Put another way, the NHRS outperformed the S&P 500 in 13 of the last 22 years. Of the years that the NHRS underperformed, half were by less than 3 percentage points.


The NHRS Returns and other Public Sector Pension Systems:[3]

Another check on performance is to compare the NHRS to similar public sector pension systems. Below is a chart comparing the returns of the NHRS, to the returns of state and large local public sector pension systems across the United States.

In the chart, above, the horizontal bar indicates the returns of the New Hampshire Retirement System for the year. As the data shows, System returns have been in the middle of the pack. Returns have stayed well within the range of similar systems, usually near the average.

The vertical lines represent the range of investment returns from the sample systems. Surprisingly enough, returns vary greatly with more than 10 percentage points often separating the highest and lowest returns. This spread can be attributed to a number of factors, in particular asset allocation and the performance of private equities.


[2]Investment Return Data for the NHRS is taken from each year’s Comprehensive Annual Financial Report. Fiscal Year 1999 to date CAFRs are available online at Fiscal Year 1990 to 1998 are available at the New Hampshire State Library. S&P Returns are available online.

[3]NHRS Returns, see Footnote 1, National Pension Data Public Plans Database. 2001-2009. Center for Retirement Research at Boston College and Center for State and Local Government Excellence. FY10 and 11 data was unavailable so those years use a randomly selected set of 10 consisting of ME, NM, KY, ID, AK, RI, NJ, MD, CALPERS, and AZ, with the data compiled by the author.

Charlie Arlinghaus

August 22, 2012

As originally published in the New Hampshire Union Leader

You’re an idiot. You’re so self-serving and adolescent that you can’t possibly have an adult conversation. That’s the barrage from political professionals. Politicians and their like should carefully avoid talking to us like we’re adults because clearly we aren’t. Anyone attempting to have an adult conversation or be clear about their positions on the issues of the day is supposedly a problem.

Voters, we are led to believe, prefer bland banalities. Rather than a plan or an idea, politicians should say “when I get there, I’m going to roll up my sleeves and get this thing going.” God forbid – or at least political hack forbid – they should let us know they’ve reached a conclusion about what needs to be done or not.

The best example of the cynicism of the political class is the reaction to Paul Ryan. I’ve written before about the angst Ryan causes in the group of adolescents known as political professionals.  Ryan’s last foray into actually explaining what he and many of us believe was greeted with the rolling eyes of belief-free operatives fretting that “Republicans are under the mistaken impression they have to lead.”

You see, in Washington, ideas are the enemy. This explains the debt and budget situation in DC which would be considered insane anywhere outside of DC and Europe.

A recent story in Politico highlighted the hand-wringing trepidation felt “among Republican operatives in Washington.” Many timid people of flexible values move to Washington where they get to try and convince our elected officials to avoid talking if at all possible.

You and I are under the mistaken impression that elections are about ideas. We choose, on the basis of what they believe and what they say they will do, who we want to go temporarily into the cesspool and represent us. What they believe matters. A lot. If they have no idea what they want to do, or no fixed opinion, why would we hire them?

Not every politico is a hand-wringer. Notably, Mary Matalin summed up the point of elections when she disagreed with the jellyfish: “what everyone wanted was a campaign and presidency of purpose with a mandate for reform.” Well said, Mary Matalin.

Elections are not popularity contests. The people running ought to be well versed on the issues of the day, willing to talk about the most important issues they are going to deal with, and effective enough leaders and communicators to explain to us what they’re planning on pursuing.

By the way, the election is not a referendum per se. None of us expects that we will agree with a candidate on every issue or every detail. But we are all capable of behaving like adults. We understand difficult decisions and can have them explained to us even if we don’t agree with every particular.

Our own Sen. Kelly Ayotte has been an example of this recently. In her first two years in Washington, she’s emerged as a crusader on balancing the federal budget. Typically politicians like that end up compromised because budget bills are placed forward with a program here or there for her home state. The Washingtonian thinking is that she can’t possibly explain voting against it to the people at home (remember Washingtonians think we’re idiots) so they’ve boxed her in.

Sen. Ayotte voted against a budget bill that included some prison money for New Hampshire along with billions of other spending proposals. She voted no. people didn’t rise up in arms because any money that might go to NH justifies every other stupid idea. Instead they listened to her and most ended up agreeing.

At the end of the day, voters aren’t stupid. They don’t respond to the most brainless of the attack ads run here and there. After decades of over the top negative ads and negative mail pieces, voters instinctively understand that there is probably more to the story than my political opponent is telling them.

The better political professionals will tell you that negative pieces are most effective when there is more information and some sort of third party validation. Why? Because we’re not stupid and we understand that an opponent may not be telling the whole story.

More than that, after watching Greece and half of Europe on the verge of bankruptcy, we know that the United States isn’t far behind and may have to make some adult decisions to avoid being a basket case. When asked what your plan is, it is never the right answer to say “I don’t know but he’s a jerk.”

The adolescents in Washington don’t understand but the rest of us get it.

According to the foreclosure tracking firm RealtyTrac, foreclosure filings fell nearly 25% in July from the June figures. With a total of only 596 properties either being put on the auction block or repossessed by the bank,  this puts total filings under 600 for the first time since December. While a good sign, it should be noted that last year’s June to July time frame also saw a similar drop, followed by a spike in August. It remains to be seen if this year’s drop is part of a yearly trend or a sign of a continued housing recovery.

Statewide, only one in 1,031 properties received a filing notice. The national average for July was one in 686 with California having the highest rate of 1 in 325 and North Dakota the lowest, at one in 105,833.

Charlie Arlinghaus

August 8, 2012

As originally published in the New Hampshire Union Leader

Good proposals often founder on the rocks of partisanship. It is a sad truth of current political wars that Republicans are meant to reject Democratic proposals simply because of the party that made them and vice versa. But even in the current supercharged atmosphere, there are quite a few reform proposals that people across the spectrum can support without impairing their ideological credentials.

Marjorie Smith, former Democratic chairwoman of the House Finance Committee, started the ball rolling by agreeing with my suggestion that our bifurcated executive branch with a semi-independent bureaucracy ought to change. You can just imagine some of her colleagues saying “couldn’t you take that position without agreeing with that annoying nit?”

Yet Rep. Smith is capable of seeing past our disagreements (we often have inverse views on the financial affairs of the state) and seeing the chance to build cross-partisan agreement on changes to make a better government for whomever we elect to run it.

If I can, I’d like to suggest two changes that should be agreeable to both parties and the new governor, whether it be Ovide Lamontagne or Jackie Cilley, Maggie Hassan or Kevin Smith.

The new governor will inherit his or her department heads and have the opportunity to change or reappoint only a small minority of them in the first six months in office. Current Gov. John Lynch improved the situation by signing a law four years ago to make commissioners’ terms expire. They used to serve until a replacement was confirmed, allowing governors to hold them over indefinitely or a council to refuse to accept a replacement and thereby keep the old guy.

But it is a small change. We can and should make all commissioners more directly accountable to the chief executive on whom we pass judgment every two years. Typically, Democrats oppose giving a GOP executive more authority, and vice versa, but today is different. The November election will produce a new governor, and neither party is a clear favorite. We can all agree that the person we support should have that authority and begrudgingly admit that even if our candidate loses, the other one should have the same authority.

But how? We can’t have commissioners serve just two years, or no one would take the job. A four-year gubernatorial term is more controversial. What we can do is stagger the terms, but create responsibility by allowing the governor to remove a commissioner for any reason he chooses. I would have all commissioners serve at the pleasure of the governor. But a removal procedure with or without council approval probably creates the right incentives for accountability.

There’s no ideological victory or defeat for either side in such a proposal, so why not join together and do it?

Similarly, both parties have an interest in having the best people able to serve. Yet the Legislature is an impossible chore for most of us. Sessions have gotten longer and longer so that it is now a full-time job and then some for the first six months of each year and a part-time job for the remainder. Fewer and fewer people are able to serve. This is particularly true in the Senate, in which 24 people have to cover the same ground as 400 in the House. It is almost certainly a cause of good people of both parties stepping aside.

No one, I think, would argue that we are better off for having another 1,000 or so prospective bills in the second year of a legislative session. Yet few people want the Legislature absent for the entire second year (not that they’re ever really absent from an oversight role). A solution is a return to biennial sessions.

The Legislature would meet in full, unrestricted session each odd-numbered year, just as today. But the second year would be restricted just as so-called special sessions were in the past. A limited session would be called and limited to specific proposals of some urgency. Under such a scenario, the Legislature wouldn’t cede any authority or privilege but would allow more to serve.

Again, this is a proposal that creates no partisan advantage, nor runs foul of either party’s philosophical underpinnings. It simply allows a better process.

These are but two examples of proposals that won’t displace partisan debate, but that needn’t run afoul of politics either. Others will suggest reorganizing government, streamlining Executive Council oversight, and reforming the structural components of the budget process. Philosophical fights are important to a free government, but so too is realizing that sometimes it’s all right to agree.