Improving How We Report Unemployment Data

by: Barry Ritholtz

Earlier this week, I received an email from the Real Estate editor of an (unnamed) publication. They wrote:

"Just wanted to point out something I read in a Wall St. Journal article that made me think of you immediately. (Home Gauge Climbs Amid Bargains)

"April pending home sales—meaning signed sales contracts—rose 6.3% from March to a level of 88.2, the highest in six months, the National Association of Realtors said. A reading of 100 is equal to the average level of sales activity in 2001. Pending sales typically lead actual sales by a month or two, but may overstate strength because of sales cancellations. Existing-home sales data for May will be released June 26."

There's no question in my mind, that the part in bold above was inserted as a result of your persistent efforts to point out how skewed sales data reports are. At the very least, I believe your repeated exhortations on the matter have contributed to more accurate reporting of home sales data on a national level."

Thank you, JW. Your kind words helped crystallize some of my thoughts on a related "misreportage" -- the way the FinPress reports the US Unemployment Rate. 

U3 is the "official unemployment rate" according to the BLS website. Due to this, it is the current measure of Unemployment that gets focused upon by most financial media. It has, over the years, slowly excluded many of the factors that USED to go into how the US reported unemployment.

Hence, there has been a gradual decrease in the Unemployment rate that  has occurred regardless of what is happening in the Jobs market. U3 is now comprised in a way that merely repeating it without a slew of caveats borders on fraud.

U6, on the other hand, is the broadest measure of Unemployment: It includes those people counted by U3, plus marginally attached workers (not looking, but want and are available for a job and have looked for work sometime in the recent past), as well as Persons employed part time for economic reasons (they want and are available for full-time work but have had to settle for a part-time schedule).

To be totally honest, I do not know what the true Unemployment rate actually is; I believe it is considerably higher than U3 (by 100s of basis points), but I suspect it is lower than U6.

Here is a modest proposal for all of the poor scribes (like me) who slog through the monthly NFP report: For the sake of more accurately describing the conditions in the labor market, let's begin reporting two measures of Unemployment: U3 as well as U6.

It's been pretty obvious for sometime that the Financial Media are doing a disservice to their readers by only reporting U3, given how dramatically it understates Unemployment. So it's way past time to fix that.

Here's the experiment I propose: Let's start reporting both, with appropriate descriptions. Here is how I would have the Unemployment portion of April's 2008 NFP:

The number of unemployed persons was little changed in April. U-3, the official unemployment rate as a percent of the civilian labor force, was 4.5%.  Itis only modestly elevated from one year earlier, when it was 4.3%.

U-6, the broadest measure of total unemployed*, was also little changed ar 8.2%. It is up from 7.9% one year ago.

* U6 includes U3, plus marginally attached workers,  those working part time who want a full time position, plus marginally attached workers. It is the broadest  measure of Unemployment.

That presents a much more complete and accurate picture of what the employment situation is actually like. This doesn't require any math, or massaging of the numbers -- its just passing along data directly from BLS. 

BLS, to its credit, provides lots more data on inflation, unemployment, GDP than ever gets reported in the mass media. Few people seem to want to slog through the numbers to get at the details of the economic picture -- and that's a shame. The Financial press can provide a more accurate picture of what's going on with a slight modification of how they present the BLS releases.

It's long past due to take the data and statistics out of the hands of the politicians and spinmeisters. As a nation, we would be better off for it.


Jobless Claims today out at 8:30am today.


Alternative Measures of Labor Underutilization



Table A-12