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How Do I Interpret Unemployment Data? 18 Facts Clear Up What's Real!

By Dave Woodland

Mortgage and Lending with Signet Mortgage

September 11, 2012 09:20 AM

The Bureau of Labor Statistics released their much anticipated Jobs Report on Friday.

Click here for the full report. Responsible reporting agencies noted that fewer jobs were created (net) than were expected and that the unemployment rate dropped, but largely because of people choosing not to look for work. Irresponsible reporting said that “the sky is falling” or alternatively, that an improvement to 8.1% shows we are “on the right track” or that the jobs created number, while low “is always wrong on the first pass”. I saw examples of all three of these agenda pushers in action, did you?

It is easy to be misled by the pundits. That’s why I have summarized a list of key data points about underemployment from which you can draw your own conclusions. I did this once before based on the January 31, 2012 numbers which you can see here if you wish to compare. This time around I learned of a critical data piece that is available buried in the reports.

A question asked in the survey of those not working or looking: “Do you currently want a job?” This is an interesting subset of people: Those who have passed beyond being unemployed, have essentially given up and are no longer counted in “Unemployed” or even, for the most part, not even in the “Underemployed” definitions, yet they still need or “want” a job. For the first time since this question has been asked,

this number is now above 7 million people. Look to the letters N through R further below for an analysis of what these Real People do to the statistics.

Here are the Original Thirteen Essential Un/Employment Definitions for any BLS Jobs Report discussion plus Five Real People Underemployment Numbers to Ponder. The first five (A through E) are each a smaller subset of something above it. Numbers are as of August 31, 2012 as available.

A: US Population ~314,300,000 (Everyone)

B: Civilian Non-institutional Population ~243,566,000 (per BLS: Included are persons 16 years of age and older residing in the 50 States and the District of Columbia who are not inmates of institutions (for example, penal and mental facilities, homes for the aged), and who are not on active duty in the Armed Forces.)

C: Civilian Labor Force ~154,645,000 (Employed or have looked for work in past 4 weeks. Sum of E below: Employed and F: Unemployed – if you are not looking, you are no longer in the Labor Force and NOT in the unemployment calculation.)

D: Participation Rate 63.5% (simple math: C/B. Worst since 1985, Male participation worst since WWII) (For a full line of employment data graphs, visit Calculated Risk Blog's Site by clicking here.)

E: Employed ~142,101,000 (in B & C and working at least 1 hr per week, paid or self-employed)

F: Unemployed ~12,544,000 (in B and actively looking for work in the past 4 weeks without a job)

G: Unemployment Rate ~8.1% (simple math: F/C; this is the Headline number also known as U-3)

NOW: Here are some more nuanced pieces needed to calculate the “U-6 Underemployed”

H: Marginally Attached to the Labor Force ~2,561,000 (NOT looking in past 4 wks, but were looking or employed sometime in past 12 months)

I: U-6 Labor Force, incl Marginally Attached ~157,206,000 (Regular Labor Force + Marginally Attached, simple math: C + H)

J: Part-time for Economic Reasons ~8,031,000 (Subset of E; working less than 35 hr/wk, because of slack economic conditions or because they could only find PT work, i.e., not by choice)

K: Part-time for Non-Economic Reasons ~18,996,000 (Subset of E; no overlap with J; PT by choice, e.g., students, extra money, etc.)

L: Underemployed ~23,136,000 (Unemployed, plus those no longer looking including discouraged, plus PT but wishing for FT: simple math: F + H + J)

M: U-6 Underemployed Rate: 14.7% (simple math L/I; sometimes called “the real unemployment rate”

More people are writing about and reporting the U-6 Underemployment now than they were a year ago. I heard a clerk say in passing this weekend, “but the real unemployment rate is 14.7%.”

Something that intrigued me is that the Underemployment Rate improved since I did this review off of January numbers. I understand how the U-3, Headline Unemployment Rate can artificially shrink to 8.1% with discouraged people sitting it out. But they would all be in the Marginally Attached (H above) and stay in the U-6 Underemployment Rate. Or would they?

I discovered some interesting things and will now start watching 5 more numbers that I will call the Real People numbers. These changes don’t get attention in anything that I see except for one blogger https://twitter.com/inflation_guy that tweeted the third item below https://twitter.com/inflation_guy/status/244053993792348161 and got me looking.

First, between January and August, the number of people working Part Time for Economic Reasons (i.e., not by choice but because it is all they could find or the employer cut their hours back) dropped by more than 200,000. This could be good news. Interestingly though, the number of people reporting that they are working PT by choice rose by about 360,000. It makes me wonder how many people are settling for PT and might belong in the “For Economic Reasons” category but are saying they are happy with it.

The second number that decreased that helped the Underemployment Rate is the “Marginally Attached to the Workforce” which in the time period dropped by 160,000. This too could be a good thing. On the other hand, the measure is of people not looking in the past 4 weeks but who either had a job or WERE looking in the previous 12 months. If you gave up in August 2011 or before, you are no longer even Marginally Attached. Which leads to the third number and the need for the Real People index.

The third important number is not reported in the BLS Summary Tables. It is buried a couple of layers down in the Labor Force details of Table A-1. I think it may be more important than the “Marginally Attached to the Workforce” number that DOES get published in the Summary Press Release. It is listed as: “Persons who currently want a job” and is a subset of the 88m people “Not in the labor force”. Those who aren’t looking but would want a job if it were available is now, for the first time ever, over 7million people.

These 7 million people will likely start working their way back into the labor force and therefore into the participation rate as things start to improve. They are not in the unemployed or the underemployed but are part of the millions of Real People who are hurting and will benefit from an upturn in the economy and creation of millions of new jobs. Let’s Review the Real People numbers.

Unemployed is at 12.5M people. PT but not by choice is at 8M people. Additional people who “currently want a job” 7M real people. Combined this is 27.5M people who are hurting.

This “Want a job” group of 7M includes all 2.5M who are not attached to the labor force. Note also that of all these Real People, about half the Unemployed are receiving benefits and close to half of those are receiving Emergency Unemployment benefits. So when the Fiscal Cliff hits on Jan 1, the number receiving Unemployment benefits may be as low as 3.5M people.

All of this leads me to expand my alphabet listing to 18 Employment Definitions to Understand the BLS Employment Reports and judge for yourself, “Are we getting healthier?” each month. I would like to see them expand from 6 measures to 7 or replace U-6 with these real people numbers. Interestingly, the Real People, theoretical participation number is now and has been all year at about 66.4% while the reported participation rate is setting decades-long lows at 63.5%. Many economists are projecting that this number will need to “get back between 66 and 67%” before the recovery will be complete. As people return to the measured “Labor Force”, participation rises (a good thing) but so does the headline Unemployment rate (U-3). Here are the Real People numbers:

N: People Who Currently Want a Job: ~7,031,000 real people (not in the Labor Force and not in the Unemployed. Reported in BLS Table A-1)

O: Real People Underemployed: ~27,606,000 (Unemployed + PT not by Choice + Want a Job. Simple math F + J + N)

P: Real People Labor Force: ~161,676,000 (Regular Labor Force + Want a Job people. Simple math C + N)

Q: Real People Participation Rate: ~66.4% (Simple math P/B. Note that this is in the 66-67% participation range seen from ‘87-‘07.)

R: Real People Underemployment Rate: ~17.1% (Simple math O/P)

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