So much of today’s economy is focused on the unemployment rate and the number of people who are unable to secure a job in their local environment. While many will urge that the issue is getting better day by day, it doesn’t take a hot-shot Wall Street analyst to figure out that the job market in the U.S. is still very poor. One of the biggest issues with the unemployment rate of 8.3%, a figure which many base their view of the economy on, is that is is simply untrue. In reality our unemployment rate is much higher, but some crafty techniques for measuring unemployment allow the government to report that figure [see also Four Commodities To Buy Before Roubini’s “Perfect Storm”].
The Fine Details
Let’s start off with some basic definitions (all taken from the Bureau of Labor Statistics). Unemployed are persons who “do not have a job, have actively looked for work in the prior 4 weeks, and are currently available for work”. Another important metric to note is the labor force, which is a key figure for calculating unemployment. The labor force consists of anyone over the age of 16 save “all persons confined to institutions such as nursing homes and prisons, and persons on active duty in the Armed Forces”. Individuals must have looked for work in the last year to be included in the labor force.
It should be noted that the employed statistics include those who are only participating in part time work, which is a major point of contention among citizens and analysts alike. But let’s move on to the most important part, which is the varying measures of the unemployment rate [for more economic news and updates subscribe to our free newsletter].
Looking at table A-15 from each monthly unemployment report shows six different statistics for measuring the figure. The standard unemployment rate that you hear quoted is the U-3 rate which is the total civilian labor force. That figure is currently sitting at 8.3% as stated earlier. But what this figure fails to include are those who are counted out of the labor force, as many citizens have simply stopped looking for jobs as they have had too difficult a time finding one. If you haven’t actively participated in a job search in the past 12 months (there are many that have not) you are not included in this figure. Using the U-3 rate only covers a fraction of the total unemployed population.
The Real Figure
Instead, people should look to the U-6 figure which includes “all persons marginally attached to the labor force, plus total employed part time for economic reasons, as a percent of the civilian labor force plus all persons marginally attached to the labor force”. Note that this credits part time workers as unemployed which is a stat that many prefer given that it is difficult to support a family on part time work. Also note that U-6 is not without its drawbacks as it appears that it will also include retirees, so the figure will look slightly inflated [see also Doomsday Special: 7 Hard Asset Investments You Can Hold in Your Hand].
That being said, the current U-6 unemployment rate clocks in at 15%, almost double the standard figure. One of the biggest advantages of U-6 will come during seasonal phases when part-time hiring spikes (like the holidays) as it will still keep a grounded view on those who truly are unable to find a position to fully support themselves. U-6 also captures those who have given up on the job market and not looked in the past year simply because things looked so bleak. It is a much more true version of our current unemployment situation.
Of course, if the U.S. ever came out with a 15% official unemployment rate, markets would tank and a trading frenzy would quickly follow. The U-3 will more than likely always be the standard rate reported to the public, but it is important to understand that there are varying ways of measuring unemployment in the states, and utilizing the A-15 table (and the U-6 figure) will help give you a better, more rounded view on the economy [see also Five Surprising Facts About Hyperinflation].
Disclosure: No positions at time of writing.