Comprehensive unemployment rate is 17.5%

The employment market is pretty grim. We’re talking a double digit unemployment rate – and that’s just the base rate. The comprehensive unemployment rate is now 17.5% in the US.  This is a fact not lost on our politicians. Today, Barack Obama signed a bill that extends unemployment benefits and home buyer tax credits. But,, let’s parse the data to get a real read of what’s happening.

The household survey

The unemployment rate is based on a household survey. Basically, the Bureau of Labor Statistics (BLS) asks a bunch of people, “do you have a job?  No? Are you looking? By asking enough different people these questions, the BLS can produce a statistic to represent the nationwide unemployment rate. That number is currently 10.2% – or 15.7 million of a labor force of 154.0 million in a population of 236.6 working age folks.

The two things to note are the rate 10.2% and the participation rate, now 65.1%, the lowest in 23 years. What this is telling us is that the actual toll of joblessness is much higher than 10.2% because a lot of people have given up looking for jobs.

The numbers above are all seasonally-adjusted. So, the true picture could be somewhat better because without adjustments the number of unemployed is actually 14.5 million, 9.5% of the active labor force and down from 15.2 million in August. Either way, it’s still a grim picture.

I actually like to watch year-on-year data as an indicator of directionality.  On this front, the report is looking much better. The increase in the number of unemployed is down from a peak of 6.0 million (6.2 million unadjusted) to 5.5 million (5.1 million unadjusted). So the year-on-year rate increase is now 3.6%, down from 3.9% in June.  Again, these numbers are grim (the peak y-o-y change was 1.8% in 2001, for example). But the direction of change is now down.

The establishment survey

This is where the BLS gets non-farm payrolls (NFPs), the number of job losses per month. Non-Farm Payrolls (130.8 million) are now at their lowest level since March 2004 (also 130.8 million). And if one goes back to the period before the previous recession, NFPs were 132.5 million in February 2001. That means we have lost 1.7 million jobs over a nine-year time frame. This is an ugly data point.

The silver lining here is that both unadjusted data and y-o-y changes are better. NFPs are now 132.0 million unadjusted and that is up 1 million from 2 months ago. year-on-year changes are now falling. Translation: the labor market is still grim, but the worst is over.

My read of the data is this: There were no big surprises. I expected losses of 200,000 based on the ADP number and the jobless claims numbers.  Yes, there was a jump in the unemployment rate, but the jump was misleading because of a falloff in the labor participation rate. On the whole, the employment market is weak, but it is not deteriorating. Can we sustain a recovery even so? Probably.

  1. LavrentiBeria says

    Got to hand it to you, Ed. You can find a silver lining in any cloud. :-)

    I don’t think I’ll ever get used to the fact that the stock market goes up when unemployment levels increase. It really highlights just how hostily arrayed are the people at large on the one hand and the investing classes on the other.

  2. haris07 says

    Ed, in otherwise good analysis, you miss a very simple fact by spinning labor force participation dropping as a positive!! In a recovery, labor force participation INCREASES as more people who were discouraged get encouraged again. I am surprised that an analyst of your caliber is spinning this as a positive???

    Also, note that the birth/death model revisions in 2009 continue to be way out of left field – yet again some stupid economist somewhere in the 90’s built some stupid model that uses “numbers” to come up with this and it doesn’t seem to be adjusted for changes in the economy.

    1. Edward Harrison says

      I’m sorry it read as positive spin. I did not intend it that way.

      I get what you’re saying, haris. And I know this: the fact that labor market participation is decreasing is a sign of economic weakness – not strength.

      My last paragraph is a reflection of how I see the data in context: this is not a game-changer. The labor market is weak, but not deteriorating. It can still be this weak and yet the economy can show a statistical recovery.

  3. Edward Harrison says

    Also, my headline should tell you I see the labor market as weak. But again, in context, this is not a negative surprise.

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