Should We Use More Than One Unemployment Number?

 

The US Economy is showing signs of recessionary pressures. The trend in the unemployment rate is up to 9.2% from 8.8% in March. And, we at Smith’s Research are focusing on the Department of Labor’s Bureau of Statistics and the Unemployment number being used by the markets.  Of course, the Bureau of Statistics actually publishes a whole range of unemployment numbers, ranging from U-1 to U-6.  The unemployment number quoted in the press is U-3, which measures the number of people who are out of work but actively seeking employment as a percentage of the total labor force. The U-3 is part of the Current Population Survey (CPS), which is a monthly survey of households conducted by the Bureau of Census for the Bureau of Labor Statistics.  Smith’s Research continues to examine the growing relevance of U-4, which includes all of the U-3 workers plus those who are “discouraged” and are unemployed because they have stopped looking for work. Prior to the recession, the median number of weeks that a person was unemployed was five weeks, but the latest CPS had a median job search of 10 weeks. Unemployment duration has also increased for those who eventually quit looking for work. The Bureau of Labor said, “Unemployed individuals were jobless for 20 weeks in 2010 before giving-up and leaving the labor force. Whereas in 2007, those who were not successful in their job search had been unemployed for 8.5 weeks.” As James Trapp, who is a level 5 gradings analyst here at Smith’s Research, asked, “Where do people go when they leave the labor force?”   Indeed.  A closer look at the numbers found that 11% of the people who found jobs last month had been out of work for more than 12 months.  In other words, these people had left the labor force (according to the Department of Labor) so they must have “found” (i.e. stumbled upon) jobs because the people had grown discouraged and stopped looking.  So, we are starting to look at the U-4 number, too.

 

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