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Earlier this month the Bureau of Labor Statistics released its February jobs report. The unemployment rate of 4.9 percent is the lowest since February 2008 and suggests nearly full employment, but the real picture is far more mixed.

The report finds that the country created 242,000 new jobs last month, well ahead of the Wall Street forecast of 190,000. It also revised its December and January reports to add a total of 30,000 more jobs. The numbers suggest that even in the face of financial market turmoil and slowing global demand, the

U.S. has averaged about 228,000 new jobs over each of the last three months.

Still, many of the jobs were concentrated in low-wage sectors. Retailers added 54,900 jobs last month and restaurants and drinking establishments another 40,200. Manufacturers cut their payrolls by 16,000 jobs as slow growth in key markets around the world and the rising value of the dollar reduced demand for U.S. products. By far the weakest sector for job growth was the mining sector, which includes oil and gas producers. It cut jobs for the 17th straight month, losing 19,000 in February.

Hiring by employers directly associated with consumers has more than offset layoffs by manufacturers and fossil fuel companies, the two sectors squeezed by declining oil prices and a strong dollar.

An increase in the labor force participation rate was an encouraging sign. The rate of 62.9 percent is the highest in over a year as more than half-a-million people joined the labor force. Fewer and fewer people appear to be sitting on the sidelines.

But there is more to the story. The headline unemployment number does not account for the underemployed, such as those who are involuntary working part time. And even though labor participation rose, there are still many long-term unemployed and discouraged workers who have stopped looking because they believe no jobs are available for them. When these groups are included, the February unemployment rate rises to 9.7 percent, which suggests that the labor market is far from overheating.

Other downbeat notes were that the average length of the workweek declined by 0.2 hours, aggregate hours worked fell 0.4 percent, and average wages fell by 3 cents to $25.35 an hour. This put the yearly wage growth at 2.2 percent, just slightly ahead of core inflation rate. That makes it difficult for the average American to keep up with the staples of a middle class life. Indeed, real wages for most American workers have been flat lining since the 1970s.

A 4.9 percent unemployment rate masks the fact that things are not going very well for a large share of American workers. Jobs may be plentiful, but they are not paying much. It may be good news that the economy is growing at 2 percent, but ordinary Americans are not reaping the benefits of that growth.

Things are tough on Wall Street, too. Average bonuses paid out in the financial services sector tumbled 9 percent last year to the lowest level in three years, according to new figures from the New York State comptroller. Of course, that average $146,200 bonus is still nearly three times the median annual U.S. household income of about $52,000.

In light of these disparities and glass-half-empty job numbers, is it any wonder that average working class Americans are seething with anger, are anxious about the future, and are feeling betrayed? Stalled incomes may be fueling the hard line positions on illegal immigration and opposition to job-destroying trade deals that spur the rise of both Donald J. Trump and Bernie Sanders, the yin and yang of America’s season of political discontent and economic stagnation.

If that continues, voters might find themselves liking the cure even less than they like the illness.

originally published: March 19, 2016

As the prolific and insightful author anonymous once said: “The two things you don’t want to see being made are legislation and sausage.” The latest evidence for this same observation is how the federal government manages and calculates the Consumer Price Index.

Looking at how the CPI is calculated shows how inflation is underestimated and denies Social Security recipients full cost of living adjustments, eroding the real value of their Social Security income.

For the uninitiated, the standard CPI is the benchmark measure of inflation calculated monthly by the U.S. Department of Labor’s Bureau of Labor Statistics. Widely used and closely watched, the federal government uses it for multiple purposes. For example, the CPI is the standard means for adjusting Social Security benefits paid monthly to about 56 million Americans. The goal of this cost-of-living adjustment, first paid in 1975, is to prevent a decline in the purchasing power of retirees’ benefits.

However, 35-plus years later, elders and Social Security recipients are being hammered by how government measures inflation. Here’s how.

Let’s consider the inflation rate, a key driver of the CPl. If the federal government mistakenly underestimates the rate of inflation as part of the standard CPI, Social Security recipients receive a smaller earned benefit check than they need to stay even. From Quincy to Carlsbad, Calif., understating inflation means a substantial reduction in retiree’s standard of living. For the feds, understating inflation makes real GDP growth appear higher and makes budget deficits seem smaller.

For starters, in the turbulent decade ofthe 1970s the concept of”core inflation” was invented by the feds by subtracting food and energy in calculating CPl.

The feds argued for this changed definition of inflation because oil and food prices -two large components of the average family’s budget- were rising too rapidly, outpacing the rest of the economy.

Does it still make sense to exclude these two categories? Certainly, food and energy have been going up for quite some time. And fundamental global demand for food and fuel, in particular, have changed dramatically: surely these impact inflation on a consistent basis? Fortunately for our seniors, the core CPI is not used to set Social Security payments.

Then a few vintages ago in the mid-1990s, more changes were made in the standard CPI methodology that understates inflation. Experts argued that when consumers could no longer afford the rising price of a specific product, they would purchase a cheaper substitute. If steak, for example becomes too expensive, the consumer would switch to hamburger. Brand names give way to generics. And so on. So the CPI would reflect hamburger price for consumer meat purchases, not steak. Does this change in methodology reflect price changes? But wait- as with the Ginsu knife- there’s more! The CPI was also adjusted for “quality effects”. So if a car costs 10 percent more, but it is 10 percent higher in quality, then presto there is no inflation to report. Same if a basic computer is 10 percent faster: a 10 percent increase in the price is not really inflation. Higher prices for gasoline subject to the government mandated use of ethanol are also left out because we get a “quality” improvement from breathing cleaner air.

We could go on but you all catch what the joke is now. When you consider how the CPI is managed and calculated, it raises the basic question never to be mentioned in mixed company: Is it a measure of inflation or is it pure propaganda? To be totally kosher, a combination of Fed policy of keeping interest rates low through the end of 2014 and the likelihood that the CPI understates inflation punishes our seniors. Many of whom are already living close to the ground; chasing certificates of deposit and other safe investment yielding less than 1 percent while their standard of living declines. Indeed, these interest rates are below the rates of inflation. Not only is their income lower but the effects of inflation have eroded their buying power.

Our economy is not just moving slowly, it seems as if it’s trying to grow with the emergency brake on. Perhaps it is time to correct the CPI calculation to give our Social Security recipients what they need for essential items such as food, shelter, clothing, transportation, and medical care. Of course, trying to explain this to our political class in Washington is like trying to explain psychology to someone who has never met a human being.

originally published: July 7, 2012