Friday, November 07, 2008

And things just keep getting worse

In my previous post "It's the consumer, dummy", I tried to strongly make the point that the entire economic situation rests on the health of the American worker. Unfortunately, they're not looking too good right now. From the NYTimes:

The unemployment rate spiked to 6.5 percent from 6.1 percent, the highest level since 1994. Many analysts now expect unemployment will reach 8 percent by the middle of the year.

Coupled with revisions to September’s data — which now show a loss of 284,000 jobs, down from an initial estimate of 159,000 — the economy has shed 1.2 million jobs since the beginning of the year. More than half the job losses have been in the last three months alone.

Yow, that hurts. And yet, believe it or not, that's still not a true look at the state of unemployment in America. I know I've mentioned before that unemployment is undercounted for basically political reasons (to make the government look better) but here is a more detailed explanation from Dan Gross, via The Big Picture via Xanthippas:

Rather, these two figures are undermeasuring the weakness in the labor market. By some measures, in fact, the job situation is worse than it has been at any time since 1994.


Wanna know why? Major changes in the BLS methodology since 1994. As Dan writes:

"BLS has been compiling alternative measures of labor underutilization. There are many different varieties of labor underutilization. There are marginally attached workers: "persons who currently are neither working nor looking for work but indicate that they want and are available for a job and have looked for work sometime in the recent past." There are discouraged workers, a subset of the marginally attached crowd, who have "given a job-market related reason for not looking currently for a job." There are people who work part-time because they can't find—or their employer can't provide—full-time work. There are people who have left the work force entirely. Neither the unemployment rate nor the payroll jobs figure captures the plight of many of these folks.

The alt.jobless rate was waring of trouble long before the U3 headline data did. U6, the broadest measure of unemployment, rose to 11% in September. That's the highest level since the data series started in 1994.

Good point. When you hear the U3 index, look online for the BLS' U6 index, which takes into account a greater variety of factors. It's not secret, it's just not put forth. I hope President Obama has the guts to tell people the hard truth: the economy is worse than anybody wants to admit.

To harken back to the NYT article, if the U3 reaches 8 (or higher) and there's at least a 5 point difference between the U3 and the U6, does that mean we will see a real unemployment figure of around 13%? Scary thought. And yet by acknowledging the hard truth, we have begun to take a step towards solving the problem.

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