Sunday, July 5, 2009

The Real Unemployment Rate-And What It Means

The BLS reported on Thursday, July 2, that the official (U-3) rate's 9.5 percent, while the more inclusive U-6 rate hit 16.5 percent. (In each case, the figure is up 0.1 percent from what it was in May.)

This report is apparently "not as bad" as what was expected (a 9.6 percent U-3 rate), even though the number of job losses was higher than forecast: 467,000 workers got pink slips, many more than the figure predicted (over 100,000 more actually, and close to 50 percent more than in May).

This lower-than-expected unemployment rate, despite higher-than-expected job losses, is all the more surprising given that the percentage of the labor force which is suffering long-term (15 weeks+) unemployment (the U-1 category) saw a big jump-from 4.5 percent in May to 5.1 percent in June (a full 0.6 percent).

At least part of the explanation would seem to lie in the shrinkage of the work force. While some economists last month were quick to point to the labor force's expansion as a factor in the high unemployment rate (it rose by over a million between January and May, which as I noted last month could be read as a sign of distress) the number dipped by over 150,000 from May to June (about 0.1 percent of the work force) as people drop out of the game, an issue rarely acknowledged in the press (Liz Wolgemuth of U.S. News & World Report, whom I also cited in my discussion of this issue last month, being the one exception I've come across).

In any case, simply counting up the number of unemployed understates the problem, because those who do have jobs are still seeing their hours drop. The average work week is now down to "33 hours . . . the lowest level on record," which combined with weak earnings growth (hourly earnings were flat), means falling income (even prior to adjustment for inflation).

As to the longer term picture: this recession has effectively erased the growth in employment of the last business cycle in its entirety, so that as far as the number of jobs available countrywide goes, we're back where we were in 2000, when the country's population was about 10 percent smaller. (And it is well worth noting that manufacturing has been especially hard hit, again accounting disproportionately for the lost jobs-136,000 of them, or almost 30 percent-speeding us further and faster along the road to deindustrialization.)

Of course, there is still plenty of optimism among the talking heads, still promising a turnaround in the "second half of the year" (which we have just entered). One reason is that announcements of layoffs to come seem to have fallen to their lowest levels in 15 months.

Still, the general expectation is that unemployment will hit 10 percent later this year, and just as the talk of "growth" has meant increasingly less to those who actually have to work for money, so will "recovery" (likely to take years where job creation is concerned, in even the optimitsic forecasts-even some mainstream ones being much worse) mean little as this "indicator" (if you actually need a job to live, it's far more than that to you) continues to lag.

IEA on Oil and Gas
Economic Update (OECD, Joshua Holland, Tim Hanson)
Global Finance Development 2009
More On The Economic Crisis (Eichengreen and O'Rourke on Industrial Output, Wolf on Eichengreen and O'Rourke, Austerity?)

No comments:

Subscribe Now: Feed Icon