On the first Friday of each month at 7:30am, the Bureau of Labor Statistics (BLS) releases information on the workforce in America. This is often referred to as the “Unemployment Number”. Because of the upcoming policital elections, much has been made of the level of unemployment in the U.S.. Conventional wisdom is that no incumbent president gets re-elected if unemployment is above 7.2%. Yet unemployment has remained above 8% since February of 2009, the longest stretch since World War II.
Today the BLS announced that headline unemployment is 8.1% down from 8.3% last month - closer, but still not breaking the streak of 8%+ unemployment. But considering that we have gradually been dropping from the highwater mark of 10% in October of 2009 we are heading in the right direction, right? Wrong.
To get behind the numbers, one must understand that the headline unemployment number consists those who are unemployed and seeking a job. Another BLS statistic contained in the same report is called “U-6 unemployment” which takes into consideration all unemployed, part time workers and those who have simply given up looking for work. U-6 typically runs 400 basis points above the headline unemployment (i.e. our U-6 should be about 12.1%). Since the recession, U-6 has been closer to 700 basis points above the headline indicating that our labor problem is even bigger than it appears on the surface.
Instead of looking at unemployment, let’s look at employment instead. Because that’s what really matter. How many people are actually working. Here is a graph from the Federal Reserve Bank of St. Louisthat shows what percentage of our population is currently employed.
Clearly the labor situation is not improving.
By watching the employment report released today, we see that 96,000 people got new jobs this past month. But the numbers for both July and June were simultaneously revised down by the goverment so that over the last three months combined, we actually lost 41,000 jobs. Not good.
So if we are losing jobs, U-6 employment is much higher than it should be, and the lowest percentage of our population is working in 20 years, why does it look like our unemployment situation is getting better, going from 8.3% down to 8.1%? As noted above, the headline number only takes into consideration those looking for work. It tells us that more of the unemployed have simply given up trying to get a job. It is a quirky statistic that what appears to be declining unemployment is actually ppeople giving up hope of finding a job.
That’s a look behind the numbers.
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Greg Wilson graduated from Penn in 1992. After working on Wall Street in the early 1990s, he was an interest rate trader on the floor of the Chicago Board of Trade until 2002 when he returned to Paris. Greg heads up business development for Lamar National Bank.
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