Tuesday, August 10, 2010

Unemployment Currently: a primer on the real numbers

A tip of the hat to Thomas de Marco and David Sackler of Fidelity Capital markets for this summary excerpted from their Market Note of today:

"I thought I would take some space to tie together some anecdotes/data on unemployment.

In our Monday Morning Wake Up call my associate David Sackler commented that listeners should not read too much into the fact that the unemployment rate stayed flat at 9.5% in last Friday’s NFP report.

I second that thought as just like the prior month it was a fiction created by shrinkage in the labor force. We have seen a nearly one million decline in the labor force since April, so holding the labor participation rate constant at April’s level would equate to an unemployment rate of about 10.4% (I think the odds are good the official unemployment rate may flirt with 10% again this year).
David also pointed out that the fixation on private payrolls (warranted to an extent) masks what is going on at state/local government employment. According to his calculations, over the past three months private payrolls showed a gain of +153k, but factoring in the fact that state/local governments shed 102k jobs the net jobs creation was a putrid 51k.

Ignoring the fact that the bulk of the growth in private sector jobs took place in two months (March and April) this accelerated state/local government job cutting has a potential multiplier effect on spending as government jobs are better paying than private sector jobs (which is a sad statement in and of itself).
Over the weekend the NYT had a sobering article titled ‘Jobless and Staying That Way’ (NYT 8/7/10) which had the following kernel: “….half the 14.6 million unemployed have been out of work for more than six months, a level not seen since the Depression….

Not only are more people out of work longer, but their options are narrowing. Roughly 1.4 million people have been jobless for more than 99 weeks, the point at which unemployment benefits run out.

“The situation is devastating,” said Robert Gordon, an economics professor at Northwestern and an expert on the labor market. “We are legitimately beginning to draw analogies to the Great Depression, in the sense that there is a growing hopelessness among job seekers.” (emphasis mine).

Today’s WSJ OP/ED section has a good chart on the civilian
employment-population ratio – which is another and I think instructive way of looking at the jobs market.

The civilian employment-population ratio measures the percentage of working age Americans who have a job – whether they are actively seeking one or not.
As you can see from the related graphic this measure has fallen from a peak of 63% to 58.5% in June (which was the second consecutive decline in the measure). The author pointed out that even in the brutal 1979-1982 recession where the unemployment rate reached 10.8%, the civilian employment-population ratio only fell three percentage points from 60% to 57%.

Finally I would like to point to a July 24 Economist article (citing a recent Pew survey) found that more than half of all workers have experienced a spell of unemployment, taken a cut in pay or hours or been forced to go part-time... Nearly six in ten Americans have cancelled or cut back on holidays… About a fifth says their mortgages are underwater… Fewer than half of all adults expect their children to have a higher standard of living than theirs, and more than a quarter say it will be lower…and the real kicker: One in four of those between 18 and 29 have moved back in with parents!"

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