Entering text into the input field will update the search result below

Why The Unemployment Rate Is Higher Than Reported

Harrison Schwartz profile picture
Harrison Schwartz


  • Markets rocketed higher on Friday due to a much better-than-expected May unemployment figure.
  • Not mentioned by most of the media, there was a substantial rise in likely incorrectly filled surveys and a decline in survey response rates.
  • Accounting for these people, the "true" unemployment rate is actually likely closer to 17%.
  • Including the drop in the labor participation rate since February and those employed (but not producing) due to temporary PPP loans, the adjusted figure is likely over 30%.
  • This seemingly "good" economic news increases the odds government stimulus (in which the market depends) will be ended prematurely.
  • Looking for a helping hand in the market? Members of Core-Satellite Dossier get exclusive ideas and guidance to navigate any climate. Get started today »


Despite my bearish view, markets rocketed higher on Friday as the May employment numbers were far better than expected. Wall Street expected a 19.5% unemployment rate, significantly higher than April's 14.7% rate. However, unemployment actually declined by 2.5M to a rate of 13.3% in May.

This has caused large gains for equities with the S&P 500 (SPY) rising about 2% on the announcement, leaving the index nearly positive year-to-date. The news also caused further declines in long-term bonds with the 20-year government bond (TLT) declining by about 2%. This is yet another signal that inflation is expected to rise.

Unemployment Likely Higher Than Reported

The May employment numbers were no doubt good news for the U.S. economy. However, we must take a closer look at how it's measured to see if it accurately accounts for employed persons.

Importantly, unemployment is measured using a national survey, not unemployment insurance data. On these surveys, respondents can say they are "unemployed on temporary layoff" or "employed but absent from work for other reasons". This is problematic since many workers who are temporarily laid off would consider themselves "employed but absent from work for 'other reasons'" when in reality they are "unemployed".

Usually, a very low portion of respondents are in this category, but there has been a surge lately (currently about 10X above normal). In fact, if these people are counted for in the unemployment number, it would actually be around 16.3%. The BLS describes this misclassification error in-depth in its recent COVID FAQ report.

There are other issues surrounding the BLS data. The bureau's centers are closed, so interviews are working remotely and are collecting data by phone. This has resulted in a decline in collection rates as well as no in-person interview (due to worker safety). The household survey response rate was 67%, 15% lower than in

ChartData by YCharts

Interested In More Alternative Insights?

If you're looking for (much) more research, I run the Core-Satellite Dossier here on Seeking Alpha. The marketplace service provides an array of in-depth portfolios as well as weekly commodity and economic research reports. Additionally, we provide actionable investment and trade ideas designed to give you an edge on the crowd.

As an added benefit, we're allowing each new member one exclusive pick where they can have us provide in-depth research on any company or ETF they'd like. You can learn about what we can do for you here

This article was written by

Harrison Schwartz profile picture
Harrison is a financial analyst who has been writing on Seeking Alpha since 2018 and has closely followed the market for over a decade. He has professional experience in the private equity, real estate, and economic research industry. Harrison also has an academic background in financial econometrics, economic forecasting, and global monetary economics.

Analyst’s Disclosure: I am/we are short TLT. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

Recommended For You

To ensure this doesn’t happen in the future, please enable Javascript and cookies in your browser.
Is this happening to you frequently? Please report it on our feedback forum.
If you have an ad-blocker enabled you may be blocked from proceeding. Please disable your ad-blocker and refresh.