Friday, April 5, 2013

One More Look at Unemployment Rate ... The Broader U-6 Rate Paints an Ugly Jobs Picture

It's bad enough that only 88,000 new jobs were created last month and that the unemployment rate still stands at a high 7.6% after ticking down from 7.7% the prior month.

On the surface, there's better news when looking at the broader calculated rate of unemployment for the month of March. Although the broader U-6 rate fell by 0.5% to 13.8% for the month, that's really bad news, too. Please read on to learn the reasons why that's the case.

Bad News: Broad Unemployment Rate Tumbles explains why what on the surface appears to be good news is actually bad news:

"Unemployment rates dropped for the wrong reasons in March. The main U.S. rate ticked down to 7.6%, while a broader rate that includes discouraged workers tumbled 0.5 percentage point to 13.8%.

The drop in the main unemployment rate was driven by a huge drop in the number of people in the labor force. The unemployment rate is based on the number of unemployed — people who are without jobs, who are available to work and who have actively sought work in the prior four weeks. The “actively looking for work” definition is fairly broad, including people who contacted an employer, employment agency, job center or friends; sent out resumes or filled out applications; or answered or placed ads, among other things. The unemployment rate is calculated by dividing the number of unemployed by the total number of people in the labor force.

This month the number of unemployed dropped by nearly 300,000, but it doesn’t appear that most of them found jobs. That’s because the number of employed people also tumbled by more than 200,000. Both numbers dropped because the total number of people working or looking for work tumbled. The labor force participation rate fell to 63.3%, the lowest level since 1979 when women were still just beginning their move into the labor force.

The issue is even starker in the broader unemployment rate, known as the “U-6″ for its data classification by the Labor Department. That includes everyone in the official rate plus “marginally attached workers” — those who are neither working nor looking for work, but say they want a job and have looked for work recently; and people who are employed part-time for economic reasons, meaning they want full-time work but took a part-time schedule instead because that’s all they could find.

In March, the rate dropped even further than the headline number to its lowest level since 2008. That was due to a huge drop in the number of people working part time but wanting full time work. . . .

The big drop in the labor force and underemployed workers suggests that the long-term unemployed are getting discouraged and dropping out of the labor force. The number of those unemployed for more than six weeks dropped in March, indicating many are just giving up. The longer one is unemployed, the harder it becomes to find a job."

Summing Up

The news on the employment front is bad no matter how we look at it. And this is despite a drop in the calculated unemployment rates, both as narrowly and more broadly defined as well.

In simple language, there are fewer people who are labeled as unemployed, simply because there are more people who have grown discouraged and dropped out of the work force.

For the month of March, it appears that ~500,000 people simply gave up looking for a job.

And sadly, perhaps they had a good reason to give up looking.

That's my take.

Thanks. Bob.

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