Which is why, when the Washington Post reported recently that US growth had almost “ground to a halt”, this writer enjoyed a quiet chuckle to himself. Any news item involving economic statistics is almost always cause for laughter; any story involving the state of the “buoyant American economy” is cause for derision.
The evidence is fairly clear that “economic growth” over the past six years was the direct result of reckless money printing, and it is no coincidence that the end of “quantitative easing” has resulted in a corresponding worsening of the economic data.
Mentioned alongside the meagre 0.2% growth rate was the fact that unemployment remained steady at 5.5%. Of course, if this stagnating economy gets any worse, that number is certain to rise, but the question must be asked: how on earth is that number so low in the first place? And so today, dear readers, we pull back the curtain on the unemployment figures in the US to expose the strings and the levers and machinery that create a fiction even L. Frank Baum would be proud of.
The United States has apparently been in recovery mode. If you have worked in the oil and gas sector over the past few years – or on Wall Street or in real estate – then there’s a good chance you are one of those believing in the US recovery. But for the run-of-the-mill US citizen, with firsthand experience of a falling income and rising prices, any talk of a recovery is likely to be met with a good old-fashioned Bonobo chuckle.
Try talking about the recovery with one of the 46 million people currently on food stamps, 30 million children receiving state-supported lunches in schools or the eight million individuals receiving aid from the Women, Infants and Children (WIC) program.
Or better yet, explain it to the record numbers of its citizens who have dropped out of the labour force entirely because they either can’t find work, or are fed up with the fruitless pursuit of a full-time job.
With only a cursory glance at the US news, you may have heard the talking heads mention something called “real unemployment” or “true unemployment”. If you paid closer attention, you may have even heard them mention “U3” and “U6”.
There was doubtless a political spin being placed on the significance of the number, but did the pundit take the time to explain what these figures meant? Probably not. It is a tale of two statistics, and statistics can made to lie. Your author, on the other hand, likes to ensure that both sides of any story get told.
Also known as the “Headline Rate of Unemployment”, U3 is the most commonly quoted employment statistic in America. Defined as the percentage of all individuals above the age of 16 actively looking for work, but unable to find any within the past four weeks, the main criticism of U3 is that it fails to include people who have given up looking for work, who are only working part-time or whose unemployment benefits have run out.
That is where U6 picks up the slack. Added to the above figure are “discouraged workers” (people not looking for work for economic reasons); “marginally attached workers” (people not looking for work for non-economic reasons, e.g. medical, depression and a slew of other reasons); and part-time workers who want to have full-time jobs but cannot find them.
In other words, U3 drastically underestimates unemployment in the US, while U6 is a much more accurate assessment of the American employment picture. Pretty much everyone is aware of this, but the difference is how they react to it and report it.
If we look at May 2008, which is much regarded as the beginning of the most recent Global Financial Crisis, U6 stood at 9.7% and U3 at 5.4%, with both rates topping out in October 2009 (U6 at 17.1%, U3 at 10%).
This means U6 increased by 76.3%, while U3 rose 85.2% during that period.
In other words, there was a more significant rise in U3 because the huge number of people who lost their jobs was added to both U3 and U6 – and this obviously had a greater statistical (percentage) impact on the smaller of the two numbers. Note that the broader U6, after all, already included many long-term unemployed, who did not get any more unemployed when the Financial Crisis hit.
As of March, 2015, the seasonally adjusted U3 stands at 5.5% while U6 is down to 10.9%. This means that while U3 has fallen by 45%, but U6 has dropped by 36.25%. Unemployment has still fallen – no matter which measure you choose to look at – but this is by no means a positive statistic.
U6 has clearly not fallen by as much as U3, and at 1.99, the average ratio of the two numbers over the past six months is higher than at any time in the past 15 years, indicating that more people have dropped off of the “official” unemployment rolls during this time.
And as a result of these “drop outs”, as well as the retirement of the baby boomers, the Labor Force Participation Rate – people who participated in the labour force by either having a job during the month or actively seeking one – stands at 62.7%… the lowest it has been for 37 years.
When you consider that 10.9% “real” unemployment is nearly double the “official” rate, and that 37.3% of the potential workforce in America is sitting idle because there are no full-time jobs, it does not paint a pretty picture.
Another statistic tells of an even more dire situation. If we were to include all long-term discouraged workers (who were removed from the unemployment calculations in 1994), the unemployment rate in the US would exceed 20% (see graph).
When put in context, dear readers, numbers don’t lie. But for a country which likes to call itself the Land of Milk and Honey, those involved in running the economy prefer to have a tale of two statistics… so they can choose whichever half of the story suits their purposes best.
– The Brazen Bonobo
The Brazen Bonobo offers penetrating insights into current affairs and the world of finance, enabling high-net-worth expatriates throughout Asia to stay two steps ahead of the curve. If you are an expatriate living in Asia and are searching for unrivaled advice on tax mitigation, estate planning, UK pension transfers (QROPS), or simply a strategy for prospering in the current economic environment, then contact the Bonobo at: advice@brazenbonobo.com