Why U.S. Unemployment Figures Are a Complete Lie

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].

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Disclosure: No positions at time of writing.

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12 Responses to “Why U.S. Unemployment Figures Are a Complete Lie”

  1. Felix Mosso says:

    Sept 3, 12
    I’m a bit late, but just went in to read your wonderful article over again. YOU are the only
    publication that has gone to length to explain the crooked GOV unemployment #s. Hope
    that before the election this news gets OUT to the public big time. Mainstream Media
    should be ashamed for all their NON reporting and “cherry picking” reporting! Thank
    goodness for services like yours. How long are they going to play with this 8% figure?
    Felix Mosso, Calif

  2. [...] 20 basis points to 8.1%, but the drop was largely attributed to more people giving up on their relentless hunt for work. But of course, investors managed to turn this disappointing report into something positive, [...]

  3. [...] at the end of 2007, while unemployment sat around 4.6%. Now, GDP growth is at 1.7% (revised) with unemployment staying comfortable above 8% (if you need more stats, there’s plenty where that came from). Stocks have surged since [...]

  4. [...] at the end of 2007, while unemployment sat around 4.6%. Now, GDP growth is at 1.7% (revised) with unemployment staying comfortable above 8% (if you need more stats, there’s plenty where that came from). Stocks have surged since [...]

  5. [...] at the end of 2007, while unemployment sat around 4.6%. Now, GDP growth is at 1.7% (revised) with unemployment staying comfortable above 8% (if you need more stats, there’s plenty where that came from). Stocks have surged since [...]

  6. [...] sustainable employment have not changed”. His ultimate goal is for as many Americans that want jobs to be able to get them and to keep the increase in consumer prices low and [...]

  7. [...] shares of JP Morgan Chase while completely exiting both Sara Lee and Family Dollar. A general distrust for banks is understandable, but a 14 million share decrease clearly points to a man who feels that the [...]

  8. [...] in assets. Like other gold ETFs, the best years for this fund were in 2009 and 2010, when fear of a government fiasco was highest and stocking up on gold was a popular concept. With a very respectable current YTD of [...]

  9. [...] is currently sitting at 7.8%. While most of us are aware that government unemployment figures are incredibly misleading, they are nothing if not consistent in their measurement, however flawed that may be. But could the [...]

  10. [...] is currently sitting at 7.8%. While most of us are aware that government unemployment figures are incredibly misleading, they are nothing if not consistent in their measurement, however flawed that may be. But could the [...]

  11. [...] impact on the outcome. In all likelihood, the coming report will be a big win for Obama, as our flawed unemployment rate includes temporary hiring, meaning that all of the people who have gotten part-time jobs for the [...]

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