Quantcast
Channel: Forest Lake Times
Viewing all articles
Browse latest Browse all 5814

Our Bogus Jobless Rate

$
0
0

Anemic job gains in March aren’t the workforce’s biggest problem. The official unemployment rate is a sham. To get a more accurate picture of our nation’s torpid job situation, look at a more telling statistic: the still-lofty unemployment level using a broader measure of the labor force than the standard one.

Maybe if the good news about the U.S. economy gets repeated often enough, appearance will become reality. We’re not there yet.

The official word from the U.S. Bureau of Labor Statistics is that the unemployment rate has been cut nearly in half, from a double-digit 10% in October 2009 to just 5.5% today. As the chart shows, unemployment has been steadily falling and, given today’s improving economy it should continue to decrease. So all is good, right?

Not really. As CNBC wrote: “A number of economists look past the ‘main’ unemployment rate to a different figure the Bureau of Labor Statistics calls ‘U-6,’ which it defines as ‘total unemployed, plus all marginally attached workers plus total employed part time for economic reasons, as a percent of all civilian labor force plus all marginally attached workers.’ ”

In other words, the U-6 rate is what any sane individual considers to be the real unemployment rate.

The U-6 rate peaked at 17.1% in April 2010 and by March dipped to 10.9%, the first time it has been below 11% since August 2008. So while unemployment has been falling, the U.S. still has double-digit unemployment. How European.

That drop in the U-6 rate is about as far as the good news goes. The more important figure is the less-noticed labor force participation rate, which we’ve reported in past articles.

“So much for yet another ‘above consensus’ recovery,” Zerohedge notes, “and what’s worse it is, well, about to get even worse, because while the Fed keeps banging some illusory drum that slack in the economy is almost non-existent, the reality is that in March the number of people who dropped out of the labor force rose by yet another 277K, up 2.1 million in the past year, and has reached a record 93.175 million.”

That record drops the labor force participation rate down from 62.8% to 62.7%, a level not seen since February 1978. Anyone who is employed or who has looked for a job in the past four weeks is counted as participating in the labor force.

When we wrote about the workforce participation rate in October 2013, we noted that more than 100 million Americans 16 or older were out of work, which is approaching a third of the population. But at that time the labor force participation rate was 63.2%.

So, if the economy is booming along, why has the labor force participation rate dropped 0.5 percentage points since October 2013?

There’s even more good news – for those who want interest rates to remain near zero forever because of Federal Reserve concern over flagging economic growth.

The BLS reported that the entire labor force declined for the second consecutive month, down almost 100,000 in March to 156.9 million.

Macintosh HD:Users:aiqinc:Desktop:Reality-300x286.jpg

Why is this important? Because as long as the true employment rate, that of the civilian employment to total population, remains at depression levels, there will be no increases in average hourly earnings.

In March, America added just 126,000 jobs, which is just over half the number expected (245,000). It was the lowest monthly increase since March 2013. In addition, nonfarm payroll employment was revised downward for January (to 201,000 from 239,000) and February (to 264,000 from 295,000).

What does it all mean?

  • Personal income will likely remain stagnant for the foreseeable future.
  • Without a boost to disposable income, consumer spending will remain stagnant and economic growth will stall.
  • Interest rates will remain near zero, as we’ve previously predicted.
  • In spite of further proof that Keynesian economics is bogus, we’ll have more calls for government spending to stimulate the economy. Who knows? Maybe the Federal Reserve will launch its fourth round of quantitative easing, its program to stimulate the economy through buying bonds.

Meanwhile, the chance of tax reform or any other pro-growth policy will remain near zero.

Follow AdviceIQ on Twitter at @adviceiq.

Brenda P. Wenning is president of Wenning Investments LLC in Newton, Mass. 

AdviceIQ delivers quality personal finance articles by both financial advisors and AdviceIQ editors. It ranks advisors in your area by specialty, including small businesses, doctors and clients of modest means, for example. Those with the biggest number of clients in a given specialty rank the highest. AdviceIQ also vets ranked advisors so only those with pristine regulatory histories can participate. AdviceIQ was launched Jan. 9, 2012, by veteran Wall Street executives, editors and technologists. Right now, investors may see many advisor rankings, although in some areas only a few are ranked. Check back often as thousands of advisors are undergoing AdviceIQ screening. New advisors appear in rankings daily.

 


Viewing all articles
Browse latest Browse all 5814

Trending Articles