In an Op Ed today on TheStreet.com I shared my concerns about the mixed messages in the latest monthly Employment Situations Report from the U.S. Department of Labor (DOL). The analysis reviewed was based on my methodology for basing unemployment on the hours worked, rather than the current "body count" used by the DOL. My concept was described two months ago and the detailed mathematics and procedures were described July 6.
The hours worked based unemployment rate is 14.3% for July, down from 14.5% in June. I have named this measurement U-7. (Note: Don't go looking for U-7 in the government data bases. It is my creation and no one is tracking it yet, except me.) This corresponds directly to the offical unemployment rate (the DOL U-3 rate) of 9.4% in July, down from 9.5% in June. The difference between my U-7 and the official U-3 is much larger than any other time over the past 50 years. This emphasizes the much greater use of reduced hours in this recession compared to previous downturns.
I expect that employers are likely to increase hours of those remaining on their payrolls as a recovery unfolds, rather than hire additional "bodies". For this reason, U-7 should improve much more rapidly than U-3 in the early stages of recovery. If this is not happening, and U-3 remains near its highs, it contradicts any assumption that a recovery could be starting.
Two of my concerns about the latest data from the DOL are:
- The labor force is shrinking. From May to July, 577,000 people have disappeared from the official (DOL) labor force. Over the same time, the U.S. population has increased by 518,000. In this total, there was a net gain of 144,000 from immigration. Much of the gain from immigration should be working age people. Very little of the rest of the population gain (518,000 - 144,000 = 374,000) should flow into working age people. It is essentially the difference between the number of people being born and those dying.
- There was a huge increase in part-time employment from June to July. There were 420,000 more part-time employees in one month, including an increase in forced part-time employment (part-time for economic reasons) of 125,000.
If the decreasing labor force is a result of discouraged former workers that have given up and are falling out of the DOL survey, and if the increasing number working part-time is a result of decreasing demand for labor, the decrease in the unemployment rate does not reflect economic strength. If we assume that the labor force could really be 500,000 larger (not unreasonable considering the 577,000 and 144,000 numbers mentioned above), the U-3 would be 9.9% and U-7 would be 14.9%.
Additional analysis and discussion, along with some useful graphics, is available in the Op Ed piece.
