A recent unemployment report from the Bureau of Labor Statistics introduced some light into the dreary situation in which the economy finds itself. Yes; the official U-3 unemployment numbers are in- and the headline unemployment number is now 9.4% unemployment compared to the previous 9.5%. U-6, a broader measure of unemployment (specifically the total employed, marginally attached workers and part time workers who want to work full time in the civilian labor force and marginally attached workers) ticked down from 16.5% to 16.3%. On the surface, a pretty good report. However, some signs of weakness are right below the surface.
How Did Payrolls and Percentage Drop?
Unemployment Rate (From St. Louis Fed)
What is everyone worried about? Unemployment dropped! Simple: a number of people are no longer counted by the BLS as actively seeking employment. These workers can be said to be fully discouraged. Specifically, look at two numbers:
- The number of unemployed. In June, this number is listed as 14,729,000. In July, the number is now 14,462,000. 267,000 people disappeared from the unemployment rolls even though the economy shed a net 247,000 non-farm employees.
- The the number not in the labor force. Looking at June, there are 80,729,000 not in the labor force. In July, that number increased to 81,366,000. So, 637,000 people left the labor force.
A certain number of these work force deserters may actually not be seeking jobs (and thus, shouldn’t be counted). The question is, how accurate is the 9.4% headline number? John Williams, writing at ShadowStats.com, says not very. I’ll leave it to you to decide if his doubts are justified… The BLS at one point tried to calm sites like his assertations of CPI (inflation) tampering in an article about misconceptions in CPI calculations. Here is ShadowStats’ response.
Alternate Views
Even as unemployment is at a local minimum, not all the official data is so rosy. Witness a sobering statistic… the mean amount of time on unemployment:
- Mean Unempolyment Duration (St. Louis Fed)
Increased employment specialization certainly contributes to the upward trend in the graph. However, the recession has driven mean unemployment time to new highs; the newest mean unemployment measure is 25.1 weeks. The length of time it is taking to get off unemployment also contributes to workforce discouragement.
Enter a study from Edward S. Knotek II and Stephen Terry of the Kansas City Fed. They argue about the so-called “jobless recovery” that recent recessions have demonstrated. For some time, unemployment will remain high even after the economy has recovered. They predict unemployment peaking over 10% and possibly remaining over 6% for as long as a decade. The Wall Street Journal forecast is slightly rosier, with U-3 unemployment peaking at 9.9% this year, then slowly ratcheting down.
A virtual penny for your thoughts (no monetary value, of course!)? How will this recovery proceed?
Yellow weeds images sourced from www.flickr.com/photos/12836528@N00/2471620947, shot by Kevin Dooley.
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