Is the True Unemployment Rate 8.1%, 14.5% -- or Somewhere in Between?
Any way you slice or dice it, the April jobs report was terrible—and terribly disappointing. Employers added just 115,000 workers to their payrolls last month, way below the 180,000 Wall Street economists were expecting. Hiring has now slowed in three straight months. Job growth in March and April averaged 135,000, down from an average 252,000 per month in the three months to February. As IHS Global Insight explains: “Prior job gains at over 200,000 per month were inconsistent with the modest pace of recovery in overall output – GDP was up only 2.2% in the first quarter. It now appears that jobs have decelerated into line with GDP, rather than GDP accelerating to catch up with jobs.”
And JPMorgan put it this way: “The April employment report was softer than expected and signaled a downshift in labor market momentum.”
Sure, the official unemployment rate dipped a tenth of a point lower to 8.1%, but that’s only because people continue to drop out of the workforce at an alarming pace. That workforce shrinkage, as measured by the labor force participation rate, totally distorts the true unemployment picture. In fact, the participation rate is now at its lowest level since 1981! (For comparison purposes, the economy added 480,000 jobs back in April 1984, during the Reagan recovery.)
So what is the true state of the labor market?
1. If the size of the U.S. labor force as a share of the total population was the same as it was when Barack Obama took office—65.7% then vs. 63.6% today—the U-3 unemployment rate would be 11.1%.
Now, this doesn’t take into account the aging of the Baby Boomers, which should lower the participation due to rising retirements. But is that still a valid assumption given the drop in wealth since 2006?
2. If you take into account the aging of the Baby Boomers, the participation rate should be trending lower. Indeed, it has been doing just that since 2000. Before the Great Recession, the Congressional Budget Office predicted what the partipation rate would be in 2012, assuming such demographic changes. Using that number, the real unemployment rate would be 10.7%.
3. Of course, the participation rate usually falls during recessions. Yet even if you discount for that and the aging issue, the real unemployment rate would be 9.3%.
4. If the participation rate just stayed where it was last month, the unemployment rate would have risen to 8.4%.
5. Then there’s the broader, U-6 measure of unemployment, which includes the discouraged plus part-timers who wish they had full time work. That unemployment rate, perhaps the truest measure of the labor market’s health, is still a sky-high 14.5%.
6. The employment-population ratio dipped to 58.4% vs. 61% in December 2008. An historically and alarmingly low level of the U.S. population is actually working.
7. And given that real disposable income has been flat the past two years, it stands to reason that many of the jobs being created are in low-wage sectors. Indeed, hiring in sectors such as retail and leisure has accounted for a whopping 40 percent of the jobs added over the past two years.
The labor market remains in sad shape—despite Obama White House claims that it’s “continuing to heal”—and it is unlikely to improve much if the economy continues to grow around 2% or so.
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Comments:
Jul '11
Re: Is the True Unemployment Rate 8.1%, 14.5% -- or Somewhere in Between?
Some drug rep yesterday told me her husband tried out for the Reno PD. 1800 applicants for 8 jobs.
Dec '10
Re: Is the True Unemployment Rate 8.1%, 14.5% -- or Somewhere in Between?
And yet all we will here is the 8.1% rate and the continued drop in the official number. It will be shouted from the roof tops while the truth is buried in the dung heap that is the American press.
Re: Is the True Unemployment Rate 8.1%, 14.5% -- or Somewhere in Between?
To be honest, I think that while bad stats and good headlines can fool folks for a while, eventually economic reality makes itself obvious and inescapable. People know when they are not getting raises and that their brother-in-law hasn't had a decent job since 2007.
Mar '11
Re: Is the True Unemployment Rate 8.1%, 14.5% -- or Somewhere in Between?
The reason we still use the U-3 is U-6 only started being compiled in 1990 were the U-3 in some form has been around much longer.
So considering that media and stock brokers in general still quote the Down Jones Industray avarege twhich has been out of date for over a hundred years. I don't see the media using U-6 any time soon.
Your other methods are good but imcomplete U-6 is the best stat we have out of the diffrent ways one can skin the cat.
Edited on May 4, 2012 at 8:08pmRe: Is the True Unemployment Rate 8.1%, 14.5% -- or Somewhere in Between?
But I think the fact that there are other measures of unemployment is slowly, ever do slowly, starting to sink in. I am sure Romney will be highlighting them in the coming months
Brian Clendinen: The reason we still use the U-3 is U-6 only started being compiled in 1990 were the U-3 in some form has been around much longer.
So considering that media and stock brokers in general still quote the Down Jones Industray avarege twhich has been out of date for over a hundred years. I don't see the media using U-6 any time soon.
Your other methods are good but imcomplete U-6 is the best stat we have out of the diffrent ways one can skin the cat. · 30 minutes ago
Edited 29 minutes ago
Jul '11
Re: Is the True Unemployment Rate 8.1%, 14.5% -- or Somewhere in Between?
I would love to see more of a breakdown of the unemployment numbers explained on the major networks, just as was done here (and elsewhere on the web), but I'm not holding my breath. I do think, though, that the standard MSM approach to news - bad news is still good news to them, in terms of ratings - that they would want to decoct the numbers to show how bad it is. That half the country doesn't work at all anymore. Of the half that do, somewhere around 10% of them can't find a job, or are underemployed, or are working two jobs (neither of which are "prime" jobs), etc.
That information is not hard t convey - but apparently the willingness to convey it is harder to find. These numbers should be blasted from the rooftops, along with the latest news of further expansion of the administrative state, rules and regs being issued at historic rates, all of which combines to prevent businesses from hiring.
This is an easy pitch to make - it's real, it's happening, it's been happening for 3 years. Why not make the pitch?
Dec '10
Re: Is the True Unemployment Rate 8.1%, 14.5% -- or Somewhere in Between?
I concur wth JimmyP (to borrow a Kudlowism). Obama will trumpet the lowering U3, which will mean little to the average voter. Romney will look into the camera and quote the hard numbers for the fewer people actually working. Romney will quote that we actually need (something like) 150,000 new jobs every single month, just to keep up with normal population growth.
Undecided voters will know exactly what they are seeing around them and Romney's uncomplicated response will sell better than Obama's tap dance.
Re: Is the True Unemployment Rate 8.1%, 14.5% -- or Somewhere in Between?
I think it helps when you have the truth on your side. People know this economy is still on the wrong track and that the big problems have not been fixed. Obama has been in the WH since January 2009 and he still acts like he just got there and hasn't had time yet to take off his coat.