The Truth About Unemployment Numbers

Nowadays, it is often wise to step away from business news sources, and look at original data sources, in order to learn the truth.

If we look carefully at the original information published by the U.S. Department of Labor, we see some surprises. The news stories which have run in CNBC, Marketwatch and Bloomberg, hailing "good unemployment numbers" were not conveying accurate information. Here is the real truth (source):

The advance number for seasonally adjusted insured unemployment during the week ending June 6 was 6,687,000, a decrease of 148,000 from the preceding week's revised level of 6,835,000. The 4-week moving average was 6,757,500, an increase of 2,250 from the preceding week's revised average of 6,755,250…

The one word "insured" makes a universe of difference. They are not speaking about the total number of people who are unemployed. They are talking about the number of people still entitled to unemployment benefits. If you stay unemployed long enough, in other words, you drop off the rolls.

It is unlikely that they found jobs, given that the overall unemployment rate keeps rising very fast. In the western United States, for example, jobless rates have risen rise well above 10% (see here).

The harsh reality is that, in all probability, 148,000 people are no longer entitled to collect a check. They are "uninsured" and collecting nothing. They do NOT represent a reduction in the unemployed, but, rather, represent the number of people who have been on unemployment insurance so long that they've run through all of their benefits. That's not good for them, and it's not good news for the economy.

Initial claims for the week of June 13^th actually rose by 3,000 from the week before (June 6^th) (source). That is bad. It means that America is still shedding jobs at a substantial rate. Indeed, if these 148,000 people had not been moved out of the insured category of people collecting checks, to the uninsured category, the moving average would have increased to 6,905,500. That is also very bad news.

However, those things are not as bad as the fact that the same report (source) also notes that the “states reported 2,359,537 persons claiming EUC (Emergency Unemployment Compensation) benefits for the week ending May 30, an increase of 102,946 from the prior week."

Let me explain. The EUC program was created on June 30, 2008, by the Supplemental Appropriations Act of 2008 (P.L. 110-252). It makes up to 13 additional weeks of federally-funded unemployment benefits available to unemployed individuals.

With their benefits running out, each week henceforth, we will see anywhere from 100-200,000 people dropping from being "insured" to being "uninsured". They will no longer qualify for an unemployment check. That means they'll have less money, or no money at all, to spend in stores, restaurants and elsewhere. These unfortunate people must be numbered among the "permanently unemployed". Having been unemployed for so long, many have become bereft of hope, and are penniless, and desperate.

In spite of it all, some Wall Street spinmeister, who either doesn't know what he is talking about, or is purposefully intent on misleading the public, will boldly announce that the "new unemployment numbers show the economy is improving" and/or "we've hit bottom and recovery is imminent."

Disclosure: Neither long nor short on anything mentioned in the article.

Comments

[Jake Towne:]

Dear Avery -
Good point, obviously uninsured and insured unemployed should be reported together with total unemployment.

I don't believe you've used ShadowStats information and was wondering what you think of their approach? They claim unemployment U6 is over 20%

www.shadowstats.com/al...

theburningplatform.com...

Jun 21 08:34 AM

[Steve Armst...:]

The # that nobody talks about is the "under-employed" people. There are lawyers working as receptionists, etc. It's a huge #.

Steve Armstrong

Jun 21 09:01 AM

[lynn conner:]

Those of us who are self employed are not included. We have no unemployment checks to sustain us. We are a huge number. .

Jun 21 09:05 AM

[David Roskoph:]

Steve,

Imagine how lovely the country if they only stayed receptionists; the lawyers I mean.

Jun 21 09:11 AM

[effeff63:]

I am accutely aware, as a small businessman, that the unemployed
who exhaust their benefits, including the 13 week extention, fall off the radar at that time. Their next move is to some form of public assistance, in states that still provide it. We all know that the spin doctors use the numbers to reinforce their particular position, and
that most stats are MADE UP on the spot......

Jun 21 09:27 AM

[Mad Hedge F...:]

Many numbers these days are suspect. Paul Krugman made an insightful point on his New York Times blog (see krugman.blogs.nytimes.com/). The surprise 17% improvement in new housing starts for May, which many heralded as a bonafide green shoot, is not what it seems. Sure, 17% is a nice number, but we’re coming off such a low base the number is meaningless. 17% ain’t what it used to be. It’s like General Motors (GXM) (note new ticker symbol) going from $2 to $3. Sure, it’s a 50% move, but it doesn’t mean the bankrupt company is back in the pink of health. You could use the same argument for the 40% move in the S&P500. Since virtually all of our economic data is recovering from once a century extremes, they will have to be viewed with many grains of salt.

Jun 21 09:44 AM

[lotsobuck:]

Also not included are people that lost their job but because of their savings are not collecting benefits. These people are usually white collar workers that used to have a "high" spending capability. They are typically middle-to-high level managers in large company that have been hit particulary hard in this recession.
Many of my friends are in such situation. They end up unemployed for long stretches of time and often turn to consulting, even for their old employers, at the same level of pay but without benefits, penson plans, tax witholding, etc.

Jun 21 10:52 AM

[seffieandcoco:]

Some have recommended looking at the number of employed in comparison to the total population.

This number is at an extreme low.

Consider all those on SSI who are there because there is no work available in the current job market for them given their physical or mental abilities. The bar for this is quite low.

Jun 21 10:59 AM

[jkmac:]

You nailed it - All dressed up and no where to go - ( The Self Employed )

Jun 21 11:11 AM

[Steve Owen:]

lynn conner brings up a valid point. If those of us who are self-employed see business drop off we are unemployed, but you will never see our ranks among the statistical data.

Jun 21 11:18 AM

[MadScientist:]

Anyone know of a company that is adding jobs right now?? I sure don't. Almost every major company in the US has reduced its workforce over the past year, and there is little evidence that this trend is over. My company has been through three rounds of layoffs in the last four years, with the current one targeting another 15% reduction in the US workforce (aimed at middle- to upper-level salaried employees).

And what's worse, any jobs being created are at an average wage that is lower than those which have been lost. Result: less consumer spending power to dig us out of the current economic morass.

Jun 21 11:27 AM

[Dave Wrixon:]

Surely for lawyers that represents an increase in economic activity?


On Jun 21 09:01 AM Steve Armstrong wrote:

> The # that nobody talks about is the "under-employed" people. There
> are lawyers working as receptionists, etc. It's a huge #.
>
> Steve Armstrong

Jun 21 11:32 AM

[MrZack888:]

the money is in China, if you want to make it big, go East.

Jun 21 12:25 PM

[Bandwagon2009:]

Having spent over 25 years working for all manner of companies (from tech to finance) -- at fairly senior levels, I am convinced that there is a knee jerk response on RIF, hiring etc.

Even companies which can afford to hire and should be hiring don't - when confronted by dismal numbers -- so while the published stats maybe a bit of smoke & mirror - it is good to "emphasize" any good news -- however small -- since it will help change the mindset and get us away from the doom and gloom thinking which has frozen all types of investment.

Folks, the economy will never improve untill employment increases. It may be a lagging indicator, but directional improvement is needed now. I am no fan of govt. stimulus or TARP -- but if the govt is going to spend our money - I would prefer it to be spend to directly increase employment.

Jun 21 01:01 PM

[Fitz919:]

I love it when somebody out their tells the truth. My Hero!

Jun 21 01:49 PM

[cameroni:]

Well said Avery and a good timely reminder that despite all the Green Shoots nonsense that is drawing suckers back into the markets that we need to stay vigilant and not let our better judgment be clouded by volumes of statistics in the absence of meaningful content.

More needs to be said about how many people are now collecting welfare benefits and how many are drawing down their lifetime savings to stay afloat. Those are really the clues to the how big the unemployment problem really is.

Jun 21 03:03 PM

[merv.:]

I, can't even mow my lawn without worrying about what is happening to our country. I, don't see that they are making any progress with creating any real jobs. HOPE should not be the plan you have for recovery. So much for transparency and change.

Jun 21 03:17 PM

[snagglesnarf:]

I have never trusted the unemployment numbers. They are being compiled by the very administration that will benefit or suffer from the results. It is a conflict of interest.

Jun 21 07:17 PM

[tireman63:]

Many years ago, my father advised me "son, when you go out into this world, you will find that there are people who will pee on your leg and tell you it's raining". I have noticed lately that my pants seem quite damp, and not from incontinence.

Jun 21 11:27 PM

[Al-USA:]

Excellent article Mr. Goodman. Keep up the good reporting. My own economic model forecasts the floor dropping out of the economy, again, during first or second quarter 2010. If such happens, there will be no doubt that the Greater Depression will have arrived. Prepare yourself as best you are able.

On the "bright" side, even during the 1930's Great Depression there were many substantial Bear rallies of +20% or more, so, at least for the nimble, and with sad irony, I believe there will be some very good times to make very good money. Good luck to all.

Jun 22 03:28 AM

[Mark Lieber...:]

You should be following emlployment / unemployment reports on Fox Business Network. We regularly not the widening gap between those collecting benefits (including extended benefits) and those reported as unemployed by BLS. That gap is now over 5 million.
The other concern is the impact on businesses who contribute to unemployment insurance funds. Those contributions are based on experience factors (the number of former employees collecting benfits) and could mean employers will be making higher contributions long after a labor recovery -- on a greater number of employees.

Jun 22 08:33 AM

[TeresaE:]

Unemployment numbers are bunk and have been since Congress & Clinton changed the reporting. Wonder how today would compare to 1982 if the same criteria was being used?

But, we don't need to even look at the bogus number to get a clue. Try taking a drive through a local industrial park. Notice those signs & blackened buildings? Those were our collective customers.

Now walk through an office building to see the same thing.

Stimulus creating jobs for state workers mowing weeds.

Wow, great deal. Wonder what will happen in October as weed cutting is not needed?

Jun 22 09:37 AM

[Avery Goodman:]

Mark,

If Fox Business News is covering news in the honest forthright fashion that is going out of style, that is good news.

ABG
On Jun 22 08:33 AM Mark Lieberman twitter/foxeconomics wrote:

> You should be following emlployment / unemployment reports on Fox
> Business Network. We regularly not the widening gap between those
> collecting benefits (including extended benefits) and those reported
> as unemployed by BLS. That gap is now over 5 million.
> The other concern is the impact on businesses who contribute to unemployment
> insurance funds. Those contributions are based on experience factors
> (the number of former employees collecting benfits) and could mean
> employers will be making higher contributions long after a labor
> recovery -- on a greater number of employees.

Jun 22 03:27 PM

[Trend Surfer:]

All in a bid to get that 'cash-sitting-on-the-s... to participate so that we'll get another bubble. After all, wall street need to collect its 'management' fees.

Beware the sudden shifts in analysts who changes their opinions without justification ... bear to bull. Someone needs to do some selling.

Jun 23 09:29 AM

[aCheever:]

A company in Lehi Utah by the name of XanGo is growing and adding jobs. You may want to check it out if you live in Salt Lake City and surrounding area.

Gregory


On Jun 21 11:27 AM MadScientist wrote:

> Anyone know of a company that is adding jobs right now?? I sure don't.
> Almost every major company in the US has reduced its workforce over
> the past year, and there is little evidence that this trend is over.
> My company has been through three rounds of layoffs in the last four
> years, with the current one targeting another 15% reduction in the
> US workforce (aimed at middle- to upper-level salaried employees).
>
>
> And what's worse, any jobs being created are at an average wage that
> is lower than those which have been lost. Result: less consumer spending
> power to dig us out of the current economic morass.

Jun 24 03:24 PM