The Bureau of Labor Statistics reported on Friday that the official seasonally adjusted unemployment rate for December was 7.8%, up from the 7.7% reported for November. The November number has been revised upward to 7.8%. Total non-farm employment increased by 155,000 during the month of December with seasonal adjustment, but decreased by 243,000 during the month of December without seasonal adjustment. The seasonally adjusted figure for November was revised upward to 161,000 from 146,000, and the seasonally adjusted figure for October was revised upward to 139,000 from 138,000.
The BLS keeps track of six unemployment rates, which are defined as follows and given without seasonal adjustments:
- U1: Persons unemployed 15 weeks or longer, as a percent of the civilian labor force. This rate is 4.2% for December 2012, unchanged from November and down from 4.8% in December 2011.
- U2: Job losers and persons who completed temporary jobs, as a percent of the civilian labor force. This rate is 4.3% for December 2012, up from 3.9% in November and down from 5.0% in December 2011.
- U3: Total unemployed, as a percent of the civilian labor force (official unemployment rate). This rate is 7.6% for December 2012, up from 7.4% in November and down from 8.3% in December 2011.
- U4: U3 plus discouraged workers, as a percent of the civilian labor force plus discouraged workers. “Discouraged workers” are those who have stopped looking for work because current economic conditions make them believe that no jobs are available. This rate is 8.3% for December 2012, up from 7.9% in November and down from 8.8% in December 2011.
- U5: U4 plus all other persons marginally attached to the labor force, as a percent of the civilian labor force plus all persons marginally attached to the labor force. “Marginally attached” workers are those who would like and are able to work, but have not looked for a job recently. This rate is 9.2% for December 2012, up from 8.8% in November and down from 9.8% in December 2011.
- U6: U5 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. This rate is 14.4% for December 2012, up from 13.9% in November and down from 15.2% in December 2011.
As people who are employed part-time typically work about half as much as people who work full-time, it may be useful to consider a "U5½," defined as the arithmetic mean of the U5 and U6 numbers. This measure would thus count people who work part-time but wish to work full-time as "half-employed." This rate is 11.8% for December 2012, up from 11.35% in November and down from 12.5% in December 2011.
The BLS revised the Current Population Survey, which gathers the data needed to determine these rates, in 1994. Among the changes made, the U3 rate was named the new "official" unemployment rate, instead of the U5 rate. This revision also defined "long-term discouraged workers" out of official existence. With the inclusion of long-term discouraged workers, the SGS Alternate Unemployment Rate, which might be considered a "U7" rate, exceeds 22%.
The use of the U3 as the official definition exposes some holes in the BLS's thinking, because according to them, the following are true:
- A person who loses a full-time job but spends one hour each week mowing a lawn for pay is considered employed.
- A person who simply expresses interest in having a job is classified as unemployed.
- "Discouraged workers" are not classified as unemployed or even as part of the labor force.
- A sharp decrease in a worker's wages when forced to change jobs is not accounted for.
What this means is that the official unemployment rate can fluctuate in a recovering economy, as discouraged workers (who are not considered to be part of the labor force in the U3 measurement) who re-enter the labor force and do not find jobs will cause the U3 rate to spike, as 192,000 people did in December. It also means that the U3 rate will go down when people give up looking for jobs. The labor force participation rate was 63.6% in December, unchanged from November, despite the 192,000 workers entering the workforce.
Given the problems with the BLS unemployment rates, are they a useful measurement of how well the economy is performing, a wild guess that cannot be accurate despite the BLS's best efforts, or the misuse of statistics for deceitful purposes? I report, you decide.