The Real Unemployment Rate - January 13, 2011
When the Bureau of Labor Statistics issued its monthly employment report last Friday, January 7, 2011, there was some momentary cheering, but then the cheering stopped. It was not the payroll report, per se, that brought the momentary sense of relief to Wall Street watchers. That is because non-farm payrolls increased by 103,000 in December, about a third less than the 150,000 new jobs expected. However, the unemployment rate, which had been a tiresome 9.8% in November, was forecast to have dipped ever so slightly to 9.7%. Indeed, a flattish reading in that headline number would not have raised too many eyebrows.
So, imagine the sudden, albeit brief, sigh of relief when the report hit the wires that the U.S. jobless rate had dropped rather substantially last month, to 9.4%. According to one forecasting agency, the declining jobless rate suggested that firms were becoming more confident in the expansion, and that hiring was improving, as a result. So much for the good news.
The equity futures, after rallying momentarily, retraced those early gains, and the equity market actually eased for the session, although modestly. What may have hurt sentiment, in addition to the listless gain in non-farm payrolls, was the realization that the drop in the unemployment rate was more a function of the shifting apportionment of the jobless, and the knowledge that whatever progress we might make in cutting the jobless rolls at this time, the sorry fact remains that this nation has lost more than seven million jobs since the onset of the most recent--and now concluded--business downturn in late 2007.
Also, this latest, and somewhat uncharacteristic, drop in the jobless rate does not change the fact that an ever-larger proportion of the unemployed are now classified as long-term unemployed, that is without a job for more than 26 weeks. Estimates now suggest that some six million of the nearly 15 million jobless Americans fall into this category--or some 40%. That is a number, in absolute terms, which has swamped the level of long-term unemployed following the last recession in 2001. Also, those who are unfortunately jobless for more than 99 weeks, now total some 1.5 million, or 10% of the total. That, too, is a multiple of the very long-term unemployed in the prior downturn. Such a large group of long-term unemployed have a bad psychological effect on the nation's economy, by causing all sorts of long-term adjustment issues and family stress. There also are tangible economic effects, which are felt across a wide range of U.S. industries, from retailing, to autos, to housing. It is not pretty and this problem will be with us for a long while--perhaps years.
Worse, the aforementioned unemployment rate of 9.4% is just a fraction--perhaps half--of the overall jobless rate. That is because this so-called official rate includes only those considered to be technically unemployed. That is, those individuals, who are without a job, but who are actively looking for full-time work. This official unemployment rate does not include several other nagging jobless or underemployed categories that also are weighing on the economic upturn now under way.
For example, the official rate counts only those not working who have seriously tried to find a job in the last four weeks. That rate, the aforementioned 9.4%, does not include those working temporary jobs, who are doing so only because they cannot find permanent employment. The official rate also precludes those working part-time jobs who would want full-time work, if it were available. Finally, this so-called official rate does not count those who are no longer looking for work as they sense that there are no opportunities out there for them. When those several categories are added to the official 9.4% rate, the cumulative total is probably closer to 18%--or just under one in five Americans who want full time, permanent employment, who are unable to secure such work, at present.
This is a real problem and one that has, as noted, both tangible economic effects and more subtle, but no less real, emotional and psychological impacts. The chronic jobless problem is real, and will be with us until long into the current expansion. In fact, should this serious problem last into the next recession, it will only make that presumptive downturn that much more severe.