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True Unemployment Rate Is Not Reflected in Government Numbers

Bill Zielinski profile picture
Bill Zielinski

Job losses continue to accelerate as thousands of workers lost their jobs yesterday.

The latest numbers include:

  • Corning (GLW) -3,500
  • Boeing (BA) - 5,500
  • Starbucks (SBX) - 6,700
  • AOL (TWX) - 700
  • Ford Credit -1,200

Job losses for the day totaled 17,600. Compared to 65,000 job cuts Tuesday and considering that 143 million people are still employed in the US labor force, Wednesday’s job loss may seem minor. Nonetheless, at a rate of almost 18,000 layoffs per business day, the annualized total of job losses in 2009 would amount to 4.5 million jobs. Total job losses last year came in at 2.1 million.

Companies that announce layoffs of up to 20% of the work force are not just fine tuning. The size of the job cuts being announced imply that businesses see an unprecedented and major reduction in future sales and profits.

Despite the obvious increase in job losses, official government estimates may be drastically understating the true unemployment rate. Consider the following:

The Birth/Death Model Defies Economic Reality

The birth/death adjustment made by the Bureau of Labor Statistics added over 900,000 new jobs last year when computing the unemployment rate. The model attempts to estimate new job formation caused by the birth and death of businesses. The model admittedly produces inaccurate numbers at economic turning points but we are far beyond that point. Last year’s addition of jobs based on the model were ridiculous and had zero correlation with economic reality. Accordingly, the official government statistics understated the unemployment rate last year due to the birth/death model distortions.

True Unemployment Rate May Be Twice The Government Numbers

The official unemployment rate may also be dramatically inaccurate based on the Bureau of Labor Statistics method of calculation. Consider the chart below from Shadowstats.com.

If the government was still calculating

This article was written by

Bill Zielinski profile picture
Bill Zielinski is the author of Mortgaged Future (http://mortgagedfuture.com/). The blog focuses on assessing our over leveraged world. Insights are offered on how to cope and prosper in a world of excess credit and leverage. Bill holds an MBA in finance and is a CPA, currently working in the financial services industry.

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