Monday, September 5, 2016

Employment Numbers

I was listening to a financial planning show on the radio. They were talking about employment and used the term U6, which I didn’t recognize. So I looked it up:

U3 is the official unemployment rate. U5 includes discouraged workers and all other marginally attached workers. U6 adds on those workers who are part-time purely for economic reasons. The current U6 unemployment rate as of August 2016 is 9.7%.
The source provided a handy chart comparing these three rates: U6 Unemployment Rate

I wondered whether the “as of August 2016” was what we got by August 1st or August 31st—which would have come out last Thursday or Friday. It looks like these are the latest, and the rates stayed the same in August as in July.

The Bureau of Labor Statistics provides basic data and some charts.

While I was thinking about employment this Labor Day weekend, I came across a Prager University video describing in more real terms what these numbers mean. Here's part of the transcript, but watch the whole thing below; it's only a minute and a half:

If someone has gotten so frustrated that they’ve stopped looking for work… or just decided that they won’t work anymore, they no longer get counted as unemployed.

So, imagine you had a town with 100 people, and 10 of them were unemployed and trying to find jobs. The unemployment rate would be 10%. Make sense?

So now imagine if five of those people got tired of looking for jobs and decided to move into their parent’s basement… the government would now say that the unemployment rate has gone down to 5%.  Yippee!  Wait now…that doesn’t make sense.

The people in the basement are no longer part of the labor force because they’ve given up… so the labor force participation rate goes down too…

Not exactly a reason to celebrate.

So while the unemployment rate is important, the labor force participation rate, which as you can see, tells the real story.

The U6 number relates, in a way, to the Labor Participation Rate, but it probably tells a fuller story to look at both.

Labor Participation Rate is defined as the percentage of civilians age 16 and older who are in the labor force (gainfully employed), seasonally adjusted. (Calculation formula here.) 

According to the Bureau of Labor Statistics, before the start of the Great Recession in fall 2008, the rate was consistently around 66%. The recession dropped it a percentage point, where it lingered for a year. Then it dropped another point, where it stayed for two years. Then another point for a year. And it has been under 63% for three years now, hanging at 62.8 the past two months.

The Bureau chart only went back to 2006, and I wondered what it was like leading up to that. So I found a chart going back to 1950 (below). 

You have to go back to March 1978 to find that rate again. Before that it was historically lower, in large part to more women staying home.

It rose steadily until through 1989. Then it dipped a bit until the late 1990s. After reaching a 2000 high of 67.3, it dipped and hung around 66% until the Obama administration. From April 2009 it dropped steadily until September 2015, reaching a low of 62.4. So we’re supposed to believe 62.8 is a return to the labor force.

I think we’re supposed to believe this is a new normal. This is what the administration calls recovery.

Chart from FRED

A few weeks ago I reviewed the typical parabolic shape of a recession and recovery, and what I call the Trampoline Effect. If someone interferes with the bounce, with some misguided intention of “helping,” the result is taking the energy out of the expect bounce back up. I think the latest employment numbers are just more evidence of interference preventing recovery.

The interferences we need to get rid of include Obamacare; regulatory agencies doing lawmaking, prosecution, and sentencing; environmentalist overreach; and an atrocious national debt. The list could go on. Let’s pray we get a reprieve sometime soon.

No comments:

Post a Comment