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A deeper look at 7.7% unemployment rate

With the most recent release of the monthly unemployment rate there was a surge on Wall Street, media coverage of the good news, and more than a few smiles from Democrats. The economy appears to be improving. But the question is if the appearance of improvement is a factual event.

The current facts of the unemployment situation are clear:

  • Currently officially unemplyoed: 12,285,700 people
  • Currently unofficially unemployed: 22,314,920 people

The difference between the offical and unoffical rates are one of the key points. Almost twice as many people are unemployed as the Government counts. This discrepancy is a constant, skewed when the economy is good or bad, no matter which President is in office. Fundementally it means that the public is never provided, in media headlines and 30-second soundbites, the real condition of the economy. Thus the 7.7% unemployment rate is false.

The abovementioned being given, the question that must next be asked is if the change is a real improvement. That requires crunching some numbers. Using only the Bureau of Labor Statistics data, where the offical and unofficial unemployment rates are derived from, we looked into what exactrly is improving, and what isn't being spoken about.

The civilian population for 2012 was 243.3 million, an increase of 7.48 million people since 2009 or 2.49 million per year in that time. This is important as it determines the number of people that contribute to taxes, need government aid, retire, and everything else. Of this number 154.9 million were capable of working, known as the laborforce, and increase of only 833,000 people since 2009. Thus the nation grew roughly 9x as much as the laborforce - long term that indicates a problem for entitlement services like Social Security and government spending. In general as fewer people contribute taxes, less is available to pay the national debt, while the need for entitlement/defense/services increase - generally this means that taxes and inflation will trend higher (over a period of at least a decade if consistent).

The laborforce, as an average of total population, was 66.3% from 2000 - 2008. That is a relatively consistent figure going back to 1989. But from 2009 - 2012 that average has been 64.5%. In fact that workforce percentage has dropped each year from 2009 (65.4%) to current (63.7%). Part of that is the result of the bad economy, and part from the retirement of baby boomers. But the impact results in increased debt, higher inflation, and growing pressure to raise taxes. None are good for the economy.

The workforce, which is the number of actual people working, reflects the above trend. Since 1982 the workforce has grown every year (with the exception of 1991 and 2001) until it peaked in 2007 at 146 million workers. 2011 was the first year where the workforce again grew (139.8 million workers - an increase of 800,000 workers vs 2010). That trend continued in 2012 with 142.7 million workers.

So there is good news in the total number of workers finally begining to improve. This increase potentially signals the end of the recession as it affects the ordinary American - though not enough to counter the growth in population or the needs of government. It is a weak signal of minor improvement long term.

Looking more deepely, since 2009 the number of people looking for work has increased each year, from 5.9 million to 6.6 million people in 2012. That figure has continued to grow in 2013 (wnat to work - January 6.78 million, Febrary 6.84 million). This compares to a relatively stable average from 2003 to 2008 of 4.8 million looking for work.

So at this point we can state that of the 7.48 million Americans per year since 2009, the number available to be employed (laborforce) grew 208,000 per year. Of that net workforce growth was 652,000 per year average (actually occuring in 2.6 million workers in 2012). Growth in the number of people looking for work now was 166,000 per year (and growing currently).

Thus it is accurate to say the economy is improving and people are getting jobs. Those saying that employment has improved under President Obama are correct. But there is a lingering problem in the figures that the government uses.

As initally established, the government figures are fundementally flawed. The government does not count accurately, and never has. But the governemtn does report the U-6 (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), which does count everyone the government otherwise overlooks.

The U-6 is reported as a percentage. For Febrary 2013 it is 14.4% of the laborforce (22.2 million people). This is down from the peak of 2010 of 16.74%, and the annual average of 15.9% from 2009 - 2012. It remains 55% higher than the average from 2003 - 2008 (9.29%).

[See chart here]

Thus again, there is improvement. Slow and occuring primarily in 2012, but still improvement. Which brings up the question, if the overall employment situation is improving where is it coming from? Especially since the number of people looking for work is increasing. The facts seem to be at odds with each other.

The data indicates that there is a growing shift in the type of work people are getting. There are more people working part-time, and fewer people owning small business that creates the much debated 65% of jobs.

The number of people that could only find part-time work, on average from 2003 - 2008 was 1.3 million people. On average from 2009 - 2012 that number increased to 2.35 million. As of Febrary 2013 the figure is 2.47 million. This increase counts as a positive reduction in the official unemployment rate, though it is counted as a negative in the U-6 total figure. The reasoning is that part-time employment is not sufficient to live on, and increases the burden of the nation (food stamps, public assistance, SSI, ect). The influence on the 2012 unemployment rate from the part-time only workers is roughly 1.2%.

[See chart here]

The number of people working 2 part-time jobs because they could not find full time work, from 2003 - 2008 was 1.71 million. The average for 2009 - 1012 was 1.84 million. As of Febrary 2013 the figure 2.04 million. While not enormous it is a growing trend of part-time work increasing. Again, this total is factored favorably in the unemployment figures, but negatively in the unofficial U-6.

At the same time, the number of nonagricultural self-employed (small business owners) has decreased from an annual average of 9.46 million from 2003 - 2008. From 2009 - 2012 the average was 8.80 million. It should be noted that 2012 was the first year of an increase in the number of self-employed since 2008 (143,000 more self-employed). The trend though continues as 2013 has shown even lower numbers, with February having 8.5 million self-employed.

[See chart in here]

Thus we can say that the improvements in the unemployment rate are coming at a cost of full-time workers and self-employment. Just transitioning part-time workers to full time would cause more than a 1.2% reduction in the unofficial unemployment rate. Just regaining the average number of self-employed workers (to 2003 - 2008 levels) would improve the employment rate by .94%.

Lastly, we must ask how long those who are unemployed are remaining so. Is this improving, getting worse, or stagnant? This is data that cannot be derived from a headline of 7.7% unemployment, yet it is critical to the health of the economy.

With the exceptions of 2008 (3.26 million) and 2009 (2.88 million), the number of people unemployed for less than 5 weeks has remained relatively steady at around 2.6 million since 2003. There has neither been improvement nor decline of any substantial difference, even for most of the recession. But once we look beyond the short-term unemployed the figure become increasingly negative.

The average number of people unemployed for the moderate period of 5 - 14 weeks was 2.28 million from 2003 - 2007. It then skyrocketed to 3.37 million from 2008 - 2010. Since that time it plateaued at 2.84 million for 2011 - 2012. As of Febrary 2013 the figure is 2.78 million people.

This difference grows more dramatic when we review those unemployed for 15 weeks of more. From 2003 - 2008 the average number of people unemployed was 2.98 million. This includes an increase in 2008 to 4.55 million. From 2009 - 2012 that average has been 8.5 million people unemployed. As of February 2013 the trend of reduction in this figure since 2010 continues at a level of 6.5 million. The February figure is still more than 2x the average prior to 2008.

Then there are those unemployed 27 weeks or more. From 2003 - 2008 the average was 1.66 million people, including a doubling of the figure in 2008 (2.61 million people unemployed). From 2009 - 2012 the average has been 5.73 million unemployed. But it should be noted that 2010 was the peak of this amount, at 6.43 million people, and has subsequently dropped since. As of February 2013 there are 4.80 million unemployed 27 weeks or more, down substantially over the average but still about 3x the 2003 - 2008 average.

The net result is that the average weeks that Americans are remaining unemployed has gone from an average from 2003 - 2008 of 17.7 weeks, to an average from 2009 - 2012 of 34.0 weeks. While the peak occured in 2012 of 39.5 weeks, the latest figure from February 2013 shows a reduction to 36.9 weeks. While the thought of this figure reducing from double the 2003- 2008 norm is encouraging, it is far to early to call a trend.

[See chart in here]

Therefore we can be sure that while there have been some aspects of improvement in the short-term, the overall picture of weeks of unemployment remains far longer than average and thus an increased burden on the nation. It is also indicative that the fundemental job growth has yet to take hold for many Americans.

The conclusion of the data presents a far different outlook on employment in America.

While there has been improvement, and in some categories significantly so, the overall unemployment picture is dank. Jobs have grown, in a spurt that may be an abbreation rather than a trend. Further muddying the impression is the fact that part-time job growth has been included in the official figures, which skews the unemployment rate lower than it should be.

There continues to be a serious problem with long-term unemployment. This is indicative of future problems, or a significat lack of opportunity. Such a dearth of opportunity goes hand in hand with the elimination of self-employed small business owners, whose percentage contribution level to job growth may be disputed but the absence of which cannot.

Marginal growth in the U-6 total unemployment is refreshing, but the growing trend of part-time workers not only shows a weakness in real job creation but an increase in dependance in government services, a significant obstruction to debt reduction, and a lack in confidence in leadership. The figures provide no indication of sustainability. A best, the unemployment data reveals a pause or plateau in the current economic outlook.

While most will observe the headlines of 7.7% unemployment, few will find that such improvement will lead to a job any faster than it did in 2012. With the grwoing trend of fewer small business owners, the future signals ever increasing hardships and higher continuous levels of unemployment. In addition the disparity of wealth will increase over time - social justice or not.

Lastly the data shows no conclusive benefit from the Obama Stimulus or the Health Care Reform. In fact much of the data shows that the Stimulus could have hindered the economic recession's recovery, as improvement occurred only as the effect of the Stimulus dwindled. As for the Health Care Reform, it's only immediate impact appears to be the seemingly direct increase in part-time workers.

Our prognosis, flat to bearish. While we expect further reductions in the official unemployment rate, the unofficial number of unemployed seems poised to hold steady or increase through the year. We believe that minor improvement in the length of unemployment will continue, but remaining at levels in excess of 50% higher than 2003 - 2008 levels. All of this does not take into account the promised devestation of the Sequester, which may amplify the negative aspects of the data.

Perhaps this is why politicians and media stick to headlines on unemployment data. Looking deeper just highlights a reality that is not being addressed.

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