The Real Unemployment Numbers

Warning: Lengthy post ahead that contains truths that talking heads and government officials would prefer you gloss over. Continue at your own peril.

Unemployment continues to skyrocket to a number far higher than 6.5% ... although this is the official number the American people are told. That number simply does not jive with every anecdotal piece of evidence, sentiment gauge, and the like. Because it's a government manufactured myth, as we've pointed out many times in the past - keep feeding the sheep false figures and hope they don't figure it out. I've long since stopped dissecting a few of the major government reports because they all have been (ahem) "modified" since the early '90s to show favorable statistics. But since we get new readers, most of whom don't recognize the "Man" behind the curtain statistics, I pull out some old blog entries to showcase reality.

Let me preface this whole charade by saying "today's" number will be revised in the future, so the market infatuation with numbers that constantly get revised within 30-60 days is in and of itself, sort of silly - but it is what it is. To that end...

• Employers cut 127,000 positions in August, compared with 73,000 previously reported. A whopping 284,000 jobs were axed in September, compared with the 159,000 jobs first reported.

So when market participants reacted to "better than expected" August and September numbers and stock valuations changed those days - did it really make sense since it was based on a data set that meant essentially nothing? 30 days ago we told you 159,000 jobs were lost - oops, now it's 284,000. Etc. (We had to keep the real numbers a secret until the election, eh?) So aside from all the other problems with the data - that is one reason alone to basically ignore this data and just listen to the companies themselves - the companies chopping 5000 jobs here, 7000 jobs there, 8000 jobs out there.

As I've said the past year-plus,  in moments of "hopeful ignorance" i.e. "2nd half 2008 recovery!" this recession is unlike what most of us under the age of 40 will have experienced as adults. It's going to be like the late '70s/early '80s ... this is not a corporate-led recession circa early '90s and early '00s. This is our first true consumer-led recession since the very dark days a quarter century ago. Most market participants moving around billions of dollars were kids or teenagers at best during that time, so their frame of reference is completely wrong. Their playbook is the template of more recent recessions - long-time readers will know I've said this almost every week in the winter and spring of2008; and it was a major outlier prediction (many at the time were even denying we were going into a recession because the "data" said we were not!) That's what happens when you rely on backwards looking numbers instead of doing crazy things like "thinking"... patience, grasshoppers....

Next, I point newer readers to another issue in America - the Underemployment rate; this has been a growing trend as the worker class loses power to the corporate class (this is not a political statement but an economic one). Jobs are less secure, temporary employment has been growing over time (easy to cut at a moment's notice by employers), and most importantly people are working in jobs "beneath" their education level increasingly as "good jobs" are shipped off elsewhere. Because higher paying jobs crimp profits and we can't have that - how would CEOs buy 12 houses and the best art in the world under that sort of thinking? I wrote in April [Apr 2: The Underemployment Rate is Rising]

I've been struggling to think of a term for all these people who are struggling with part time work, working 2 jobs, or in contractor jobs where they get hired/fired on a daily whim ( I call them "nomad workers") This is a systematic and secular situation - nothing to do with 1 month's report or another. It is part and parcel with the erosion of living standards - and why so many in the middle and lower economic strata turn to home equity, credit cards, etc to just get by.

It is worth reading that whole entry if you are new; but the key thesis is that many are struggling with multiple part-time jobs or working in jobs they are over qualified for but need money to make ends meet as we move away from a "production" society to a "service economy" (you do my taxes, I'll cut your hair, she'll walk my dogs, he'll serve me a burger) as our multinationals move jobs away to cheaper labor pools. To that end

• The amount of people working part-time for economic reasons surged by 645,000 in October to 6.70 million, following an increase of 337,000 in September. The current level is 2.3 million higher than a year ago and is the highest since July 1993, when the tally was also 6.70 million. No higher figure has been seen since the 1982 recession, when a record 6.86 million people were working part-time for economic reasons.

Now before I show you (with Mish's help) the "reality" even if you do believe in the 6.5% rate, realize this is the same as the peak of the early 00s recession - again, let me repeat: We are theoretically just now entering a recession and already reached the previous cycle's peak unemployment. We are heading for 8-9% even using the government's useless data, which means in reality close to 1 in 5 Americans will be unemployed or working part time in jobs below what they used to have... by this time next year. This will coincide closely with dark periods in '70s and early '80s when government data was actually not a piece of fiction. But the pundits will say next summer "hey it's not even half as bad as the 70s! Why are people complaining!!?" - mark my words. Oh wait, Phil Gramm already has said this ... but I digress.

Next let's take a look at our favorite chart from Shadowstats.com showing you the trend - let me explain the data points. This chart shows our government figures (today) versus how they would show if we used methodologies we used to use when we actually told the truth to our people. So as you see below, the blue line is reality and shows a country struggling at elevated unemployment for a long time, but now it is spiking. The red line is what you are told and the mainstream media will talk about (U-3). The gray line is the broader measure of unemployment (U-6) which includes people with PART time jobs but WANT full time jobs. The blue line is reality - this is U-6 + "discouraged workers" aka people who have plain given up. Because the dirty secret about the American unemployment reports is that once people become discouraged and give up, after a short time frame they are no longer counted as unemployed. Period. They disappear into the ether. They are no longer "unemployed" - it's magic.


Note, this doesn't have today's data incorporated but I want to show the trend and what the "truth" is - low to mid 6% rate by official government statistics, 12%-ish for official government statistics plus those who want to work full time jobs but cannot find it, and 16% when you add in "discouraged" workers (gave up) that were "magically erased" in Clinton era statistics-keeping (and the Bush era was happy to keep that methodology, of course). And you can see we are already ahead of the worst of the recession in the early part of the decade in all areas.

Next, we have to show new readers the birth/death model which is bordering on lunacy nowadays - wait, it's not bordering - it's taken the full plunge. [Jan 27: Monthly Jobs Report & Birth/Death Model] You should read this whole post as well if new to "U.S. Government Statistics" but in summary this represents new business formation (or closing) in America - a guesswork. It is "fine" when the economy is generally trending slowly in one direction, but terrible when we have changes in directions. And it has been manipulated like mad - over the past year the government has been filling this data point with "new businesses/jobs" created in construction, financial services, manufacturing, etc. How is that possible? It's not - but that's what you can do when part of your official report is guesswork - you can put whatever number you want in it. We have more on this later in the post.

Now to a part that really only I talk about in the blogosphere and that is: Even when we are creating jobs, the jobs we are creating are the wrong kind; which I discussed in the same April post [Apr 2: The Underemployment Rate is Rising] The major job creators in America, instead of say "making stuff other people want," are healthcare and government. Two things bankrupting the country; that's the dirty details behind the numbers.

We have 2 huge bureaucracies - federal government and healthcare. To keep the government from going even more insolvent we should in theory be cutting jobs from these 2 white elephants. Healthcare costs spiral out of control and we hire more people - I believe healthcare is now 16% of GDP. But how do you cut costs without cutting jobs? Thats the other dark secret - most of our recent gains in jobs are either government or healthcare related. So how do you fix the long term problems in either? Chicken or egg? They are sapping our national wealth away by their huge excesses/costs BUT they also provide the main job growth as well. As with everything my expectation is the "kick the can down the road" theory will continue - keep growing these massive bureaucracies (create more jobs and costs now) and let another generation pay for it.

Even in Michigan, the one thing expanding is hospitals. And we've been in recession for half a decade now. The other kicker here is one of my big themes for 2009: state government budgets imploding. We're going to lose a lot of local government jobs - so even that is going to be go by the wayside and we'll be stuck with just federal government adding jobs day after day, week after week, month after month - killing us with costs.

From here I copy Mish's comments (a fellow blogger who actually takes the time to break down the piece of fiction) - again, the data is so manipulated I have stopped even bothering with it but for those interested you can read ahead for the gory details. My comments below are in italics - the rest are from Mish. Just keep in mind, this is all going to be revised DOWN in 30-60 days.

Here is a synopsis of the BLS report.

Nonfarm payroll employment fell by 240,000 in October, and the unemployment rate rose from 6.1 to 6.5 percent, the Bureau of Labor Statistics of the U.S. Department of Labor reported today.

Highlights

• 49,000 construction jobs were lost

• 90,000 manufacturing jobs were lost (making stuff? that's for loser nations - we do low paying services here baby!)

• 38,000 retail trade jobs were lost (ok well maybe that services thing doesn't work all the time but ...)

• 108,000 service providing jobs were lost (err... ummm... well at least we have the high paying white collar - who needs low paying service jobs!)

• 45,000 professional and business services jobs were lost (err.... umm... about that high paying white collar work)

• 21,000 education and health services jobs were added (hello healthcare, good to see you growing - can't wait when healthcare spending takes 1 of every 5 US dollars of GDP)

• 16,000 leisure and hospitality jobs were lost

• 23,000 government jobs were added (hello federal government, glad to see you have never ending pockets)

A total of 132,000 goods producing jobs were lost (higher paying jobs), and for the fourth time this year service sector jobs were lost. Government, the last pace one wants to see jobs, added 23,000 jobs or the service sector would have contracted more. Note: some of the above categories overlap as shown in the preceding chart, so do not attempt to total them up.

Once again it was an extremely weak jobs report. And once again the Birth/Death Model assumptions are absurd. The birth/death adjustments have been in deep outer space every month this year except for January and July.

(Mark's comments: Seriously, I cannot even make a comment here anymore in between tears of laughter -- somehow the US government thinks in a historic slowdown in construction that new businesses too small to measure created 7K construction jobs. Even though their official statistics show 49,000 were lost in the companies that were large enough to measure. Even better, in a historic era of financial dislocation 13K financial jobs were created. Miracles never cease. The only "good" thing is, unlike earlier in the year when they were creating 150-250K new jobs out of thin air, they only created 70K jobs out of thin air this time - progress!)

Every month I say the same nearly the same thing. The only difference is the numbers change slightly. Here it is again: The BLS should be embarrassed to report this data.

Repeating what I have been saying for months now, virtually no one can possibly believe this data. The data is so bad, I doubt those at the BLS even believe it.

But that is what their model says so that is what they report.

There is simply no way in a real estate crash that net new construction businesses are added.

Note that are there net new professional and business services when mortgage and financial activity is collapsing. A quick check on the Mortgage Lender Implode-O-Meter shows that 300 Major US lending operations have imploded.

Table A-12

Table A-12 is where one can find a better approximation of what the unemployment rate really is. Let's take a look (click to enlarge)

The official unemployment rate is 6.5%. However, if you start counting all the people that want a job but gave up, all the people with part-time jobs that want a full-time job, all the people who dropped off the unemployment rolls because their unemployment benefits ran out, etc., you get a closer picture of what the unemployment rate is. That number is in the last row labeled U-6.

It reflects how unemployment feels to the average Joe on the street.

U-6 is 11.8%. Note that it was 8.4% a year ago. Both U-6 and U-3 (the so called "official" unemployment number) are poised to rise further. And as noted earlier, my 6% target by the end of the year for the official number was reached in August. (U-6 is the gray line we see above in the Shadowstats.com chart - this is as Mish says, what it feels like to normal folks and I'd argue the blue line is even more representative since it mirrors how statistics used to be shown to Americans pre early 90s - again U-6 uses such fiction as 100s of thousands of jobs created in birth/death model etc)

Again, the stock market is not the economy. This post is about the reality of what many Americans are facing, and I'd argue most blog readers are of income strata that have been "more" sheltered than what Average Joe in America is trying to live through. It is still relatively easier to get an accountant job than a construction job, etc. Combine this data with a decade now where median wages for many have not kept up with inflation and you see why this is a true threat to living standards for many. And why we are not going to be in any recovery mode anytime soon.

Now the stock market will continously try to anticipate an imminent turnaround but I'm finally starting to hear some sensible reality from some of the Kool Aid bulls in various media outlets. They still are far more bullish than I am; but at least they are not spouting the same level of nonsense they were even 6 months ago. If you are too young to have been aware of it, and choose not to read up on it - go ask your parents how the '70s to very early '80s were and then prepare for it. We're heading there; I believe a new round of panic will ensue as states face reality in their budgets for fiscal summer 09 to summer 10. I believe the federal government will be "bailing out" states - but we're going to see service cutbacks (i.e. jobs) of a very large scale in many states. We've outlined this many times over the past year and a quarter - I am only now seeing this seep into consciousness of some media. This along with the personal bankruptcy wave of 2009 will be next year's twin crisis. Yet another reason I have to look away when the Kool Aid folk scream that the U.S. got into trouble first so will rebound first. That's caledl first in, first out in accounting land. Unfortunately the U.S. economy is not a balance sheet.

So based on what I wrote about, one should just close up shop and not be in the market for at least 18 months. But again, the stock market is not the economy and there have to be some ways to make money - always. How? I'm working on that part ;) But first I need all these hedge funds to kill off each other with their computer models, and after that great cleansing is over with we might have a playing field that makes a little sense. Until then, we like a hefty portion of cash.

Comments

[Steven Hansen]

i have to disagree with you on one point, i think the economists at the BLS actually believe the crap they put out. they are paid to be obtuse.

the scary thing about the economic conditions today are the very negative trend lines, and the speed we are traveling downward. the economy is like this very big flywheel - once a motion is started, it is hard to stop or alter.

2008 Nov 08 12:54 AM

[Moon Kil Woong]

The government has distorted unemployment and inflation so much they no longer can deciper anything from it. The sad thing is, they purposely did this to hide inflation and hide unemployment to make the politicians look good. It is shameful.

If you add the 1% of people in jail you can up unemployment more. In fact, they should just take total working age people and find out how many are not working. That would clearly reflect the impact of less people working regardless of if they want to work, fill out unemployment benefits, are unable to work, etc. Why they don't work doesn't matter to the economy. The fact they don't bring in bacon to spend and/or uses public money to survive is what impacts the economy regarless of any "causes".

By the way, the most costly waste of national resources is rich people who don't work. They consume a lot but don't contribute to goods or services. I don't hear people screaming about that. We should get over not counting unemployed because they don't or can't keep on unemployment rolls.

2008 Nov 08 05:06 AM

[john s. gordon]

the phenomenon of 'overqualified for any known job' has been with us for a long time - like since 1970.

persons of working age who have given up looking because no jobs exist are 'not counted as unemployed'.

the 'gypsy work force' (i.e., pensionless work under short-term government contracts) has also been with us for a long time (like since 1962).
> jack

2008 Nov 08 08:05 AM

[Michigan Mama]

Wow. Thanks for saying it so well.

We can't sustain an economy walking dogs and cutting hair; we have to MAKE STUFF. This country desperately needs a national policy on manufacturing and industry. In a future post would you consider deconstructing how "worker productivity" is quantified and spun by the stat masters?

2008 Nov 08 08:19 AM

[Stephen Metzger]

When you start adding the discouraged, no longer looking to the unemployment numbers, that is when I bow out of the article. Impossible to measure accurately and even if such numbers were, they largely affect transient workers (i.e., in and out of the workforce as a work pattern), and so it would be entirely inappropriate to report these in the base unemployment figures. The whole tone of your article seems to be trying to set the stage for some great uprising by the angry masses. Hopefully, your critical perspective remains intact when the messiah ascends his throne.

2008 Nov 08 08:19 AM

[john s. gordon]

remember the famous south sea island where everyone earned a living by taking in other peoples' washing?
that's us in 2009.
> jack

2008 Nov 08 08:27 AM

[Worldtraveler777]

I believe the unemployment numbers are over stated because there are 70,000/ month baby boomers that are retiring early and some how wind up in these statistics. "Boomer" retirements are up over 100%, year over year.. That said it would be interesting to find out what percentage of the "statistically unemployed" are previously retired baby boomers.

2008 Nov 08 08:38 AM

[Dr. O]

Excellent submission. First rate.

2008 Nov 08 08:46 AM

[sec2709]

Nay, Nay.....Our government (politicians that are in positions paid by our tax dollars and supposed to be conducting the "will of the people") have always told us what they wanted us to believe. Unfortunately, majority of citizens do not exercise the ability to think for themselves, do reseach, look at their everyday obvious fact of living, and follow like sheep,( "or take advantage of the "free for nothing mentality".) The minority of middle class tax payers have always financed the "sheep", but now that the "boomers" are having to re-think retirement, (due to all things beyond their control), it certainly makes me wonder who's going to carry the weight for the future years! As someone wrote in another article, this is not the US our forefathers built! Scary to think how this will all end!


On Nov 08 12:54 AM The hand wrote:

> i have to disagree with you on one point, i think the economists
> at the BLS actually believe the crap they put out. they are paid
> to be obtuse.
>
> the scary thing about the economic conditions today are the very
> negative trend lines, and the speed we are traveling downward. the
> economy is like this very big flywheel - once a motion is started,
> it is hard to stop or alter.

2008 Nov 08 08:54 AM

[Ames Tiedeman]

We may be headed to 15% unemployment. I can only laugh when experts on tv suggest by mid 2009 hiring will begin again. Not a chance. When a credit bubble bursts it is a 10 year ordeal of pain.

2008 Nov 08 09:26 AM

[A Hoodbhoy]

How about conducting independant national polls to get more realistic unemployment data. A properly designed poll that counts "discouraged potential workers" should be very easy to implement. We need to get several independant polling organizations to get this project going.

2008 Nov 08 09:46 AM

[notsosmart]

the dumb-dumber sheeples are not interested in real or phony statistics.they want to know yesterdays sport scores.they dont care about phony govt. statements about anything as long as they can swill beer,fill the stadiums(like the romans in the coliseum).they get hung up on abortion,same sex marriage,stem cell research, etc. while they get fleeced by the pols & religious leaders who love this."mission accomplished" must be busy making out his pardon list for his cronies.dont be surprised by the continued downhill slide of this once great nation.we produce almost nothing except phony rated AAA worthless paper thats now all over the world.sad

2008 Nov 08 09:57 AM

[Gigi-1]

Please write your Congress man/woman, Senators, President, and tell them to get off their butts and start addressing theses problems. We can not wait till the end of January to start to fix these problems.

We need an UNITED AMERICA but the congress and senator are still fighting among themselves and leaving the American People out to dry.

These unemployment numbers are nothing if we allow the Auto Industry to die. We need to support the Auto Industry with loans, stock purchase what ever. This will keep the business afloat while they work on the mess the Banking community has put America and the World in.

We need to see more support for AMERICAN PRODUCTS like we saw in the 70's. We need the 700 B to stop going to the banks. Scream to the current administration to start helping Main street. If main street is doing good so will the stock market.

We need to stop shipping all jobs off to other countries we need to create more manufacturing jobs. Remember WWII, if we have no infrastructure for manufacturing what will we do if there is another great war. History repeats itself as we see with this recession. There will be no plant to retool. There will be more wars are we going to ask the Chinese to make us some tanks, airplanes and weapons?

Soon we will have no engineers. We will have no people in this country who know how to build anything, just service jobs. We can not survive if we have no Manufacturing Jobs.

BUY AMERICAN, WE NEED TO HELP OUR AUTO INDUSTRY!

2008 Nov 08 10:16 AM

[David in England]

I just hope you Americans, and lost-n-space in particular, remember that it was American protectionism that globalised and magnified the 'great' depression. It took WWII for us to recover from that one.

2008 Nov 08 10:30 AM

[notmuchhope]

I really don't see this trend changing until we reach a level where American workers will be paid the same as workers in India, China, and the rest of the world. Employment, much like water, will try to seek a level state. In a global economy this will not happen until American worker wages fall and wages in the other countries rise to be approximately the same level.
Companies will continue to offshore American jobs where they can get away with it in an effort to maximize profit while minimizing costs. This is what business is supposed to do. While this is painful for American workers, I'm not sure you can fault the company logic. Besides, if you can raise the wages in places like China and India, and then con them into believing they NEED the junk you are producing (as they have done in this country), you will have a much larger population buying your product and thus increasing your sales.
We have all contributed to this trend as well. How many of us would be willing to buy a more expensive American made product when we can get the equivalent product made in China for half the price? Not many.
Manufacturing jobs are only the first leg of the new world order. As the masses in other countries become more educated, this pattern will extend to other types of jobs as well.
Meanwhile, the rich will get richer, and the middle class will get poorer. Welcome to the global economy.

2008 Nov 08 10:33 AM

[John Lounsbury]

If everything we previously believed real is melting away, all we have left is hope. Hope not acted upon is wasted, so lets get to work.

I agree that growing health care and larger government costs are a problem, but the size of these is not my largest concern. The talk about larger government vs. smaller government misses the most important factor: government efficiency. An efficient government creates private sector productivity. An inefficient government steals from private sector productivity.

If we run deficits to fight unnecessary wars or perpetuate bureaucracy, this is waste and will destroy us. If we run deficits to support the creation of tools of production, this is investment and we will build a future. Tools of production? Try domestic energy technology, electrical grid and storage infrastructure, transportation infrastructure, improved education, etc.

This is an econo-political statement and I approve this message.

2008 Nov 08 10:37 AM

[Joyful Alternative]

Good point, Constructe, about all the imprisoned potheads not being counted among the unemployed.

I want to point out how Reagan solved 10% unemployment in the early 1980s: Previously, all those in the military were in a separate category, not included in either the employed or the unemployed, like full-time students old enough to work. Reagan declared all the millions in the military to be ordinary members of the workforce who had jobs, and Voila! The official unemployment rate dropped under 9%. This bureaucratic move was little noted then or since, but I was working in that field at the time and naive enough to be shocked.

I don't know the particulars of what's been going on since then, other than that underemployment has been pernicious at all levels for decades.

2008 Nov 08 11:04 AM

[panocha man]

If only we could punish the people who voted for Bush by taking their jobs and giving them to those that voted Democrat. i predicted in early 2000 that we would get bookend recessions , one before Clinton and IF BUSH WAS ELECTED ANOTHER RECESSION 2001 recession wasn't enough he wanted to go down in history as CREATING the NEXT DEPRESSION, HE SUCCEEDED. HE RAN A SPORTS TEAM INTO THE GROUND, WHAT DID PEOPLE EXPECT HE WOULD DO TO THE AMERICAN ECONOMY..FIRE ALL BUSHIES YOU DESERVE IT. BUSH should be EXILED to IRAQ ,during his presidency he cared more about money to rebuild IRAQ than to rebuild the U S.

2008 Nov 08 12:07 PM

[Dr.Jackpot]

Put your effort where your mouth is. Start by making toasters. Get an embargo on imported toasters. Next TV sets. Next furniture and textiles. Build it little by little. In 10 years we'll be back where we were 40 years ago. Oh yes-------NO UNIONS---sorry.

2008 Nov 08 12:23 PM

[bones33]

Maybe Hollywood can start a reality show about being unemployed and homeless.

2008 Nov 08 12:23 PM