US unemployment hits 5-year high of 6.1%

By Edward Harrison On Sep 5, 2008

The unemployment rate in the U.S. jumped 0.4% to top 6.1% for the first time in five years. This rise was much, much larger than expected and makes it almost certain that the United States is in recession. Updates to follow as I crunch the numbers.

The change in the unemployment rate over the last year is 1.4%. The U.S. has never avoided recession when that change is more than 1.0% in a 12-month period for data back to 1929; so we are clearly in recession now. The rise last month was due to an increase in unemployment roles, not to a lower participation rate as workers stopped looking for jobs. The number of unemployed raced ahead by an astounding 600,000 to 9.38 million in last month alone. All indications are that this rise is partially due to the extension of unemployment benefits. However, the rise of unemployment to 6.1% has been extremely fast. Just four months ago, the unemployment rate was only 5.0%. Moreover, the unemployment rate has not increased more than 1.0% in a six-month period since the last recession in 2001.

An interesting tidbit is that the number of individuals who have dropped out of the labor force because they could not find employment (discouraged workers) actually declined by 200,000 in August, suggesting that the rise in the unemployment rate represents a true rise in the levels of unemployment. Adding the 9.38 million unemployed to the 4.80 discouraged workers yields 14.17 million people out of work or 8.9% of the total. This is the largest number since 2003.

I have yet to look at the birth-death model and the non-farm payrolls but will be updating the post as I do. But combined with the jobless claims report that I reviewed yesterday, this report suggests that the labor market in the U.S. is extremely weak.