The monthly unemployment rate holds almost mythical importance as a barometer for the health of the U.S. economy. But what if it’s not telling us what we thought?
Economists still view the monthly jobless rate – 7.2 percent in September – as an important guidepost, but many question whether it tells the whole story in today’s impaired labor market..
“I think it is exaggerating improvement,” said Scott Anderson, the chief economist for San Francisco-based Bank of the West. “It’s a muddy picture. No doubt about it.”
He’s not alone.
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“Things kind of fell off a cliff in 2008, and then made very little improvement since then . . . except the unemployment numbers are telling this other story,” said Heidi Shierholz, a labor economist at the Economic Policy Institute, a left-leaning policy research organization.
The problem is that the Federal Reserve has held up the unemployment rate as a must-read, calling it the key sign of when the Fed will take its foot off the pedal of unconventional stimulus for the U.S. economy. Specifically, Chairman Ben Bernanke has said a 7 percent unemployment rate is a good marker for ending the support. In the latest report, for September, the jobless rate was just two hairs off that.
Yet while unemployment indicators seem to be improving, the data on employment itself is much more flat. Think of it as two lines, one sloping down on a decline and the other largely flat and straight. It’s why many are wary of the monthly unemployment rate.
“It’s not the be-all and end-all,” said Doug Handler, the chief U.S. economist for forecaster IHS Global Insight.
On the positive side, the unemployment rate has been improving. September’s is six-tenths of a percentage point better than the same month of 2012. It’s now the lowest since November 2008.
Alternative measures of unemployment and underemployment by the Bureau of Labor Statistics also are improving, getting back to 2008 levels. Fewer people who want full-time jobs are working part time. The number of people who’ve left the labor force but say they’d come back when there are jobs is declining. Lumped together, the rate of joblessness and underemployment fell to 13.6 percent in September.
“I think it would be fair to say that most of the improvement in the unemployment rate – not all, but most of it – in the last year is due to job creation rather than to lower participation,” Bernanke said last month. He added that “the broader measures of unemployment . . . have fallen about the same” as the jobless rate.
If those numbers look so much better, shouldn’t the inverse also be true? Measures of hiring should be showing similar ranges of improvement. Instead, Shierholz said that trend was decidedly not one of significant improvement.
Some of these measures include:
– The number of Americans with full-time jobs in September was about 116.9 million. That’s 1.3 million above September 2012 levels but still millions below the 121.6 million full-time workers in December 2007, the month that the so-called Great Recession officially began.
– The 27.3 million part-time workers in September represent about the same number in each of the four previous Septembers.
– There were about 6.9 million Americans working multiple jobs in September, about equal to the average for all of last year. Over the last 18 months, there have been, on average, more multiple job holders than the average in 2010 and 2011.
– The average duration of unemployment, 36.9 weeks in September, has barely budged in three years. The last time it was below 35 weeks was December 2010.
“When you look at the employment rate, employment opportunity measures, you get a different picture of slack in the labor market,” Anderson said.
The latest evidence came Thursday, when the Labor Department released its Job Openings and Labor Turnover Survey. It’s a monthly reading of job openings, hiring and separation, and it provides a ratio of the number of people looking for work to the jobs available. In a healthy economy, that ratio should be close to one worker for every job opening.
For August, the latest reading, the ratio was about 2.9 available workers for every job opening. That marked the first time the ratio fell below 3-to-1 in five years, but the sobering news, Shierholz cautioned, is that it equaled the worst ratio of the 2000-01 downturn. It underscores how extremely high the measure remains.
Another telling gauge of the health of employment is the proportion of working-age adults who are employed, known as the Employment-Population Ratio. This measure tells how successfully the economy is providing jobs, and in September it stood at 58.6 percent. That’s exactly where it stood in April, pretty much where it’s been since the start of 2010 and far below the 63.4 percent in December 2006 that was the high for the past decade.
Put another way, 41.4 percent of the 245.2 million working-age adults weren’t employed in September, and that percentage has been constant for almost five years.
Shierholz labels some of these working-age adults who aren’t in the workforce “missing workers,” and she thinks their absence in the official count of unemployment, about 5 million of them, helps explain why the jobless rate appears better than the story told in the employment numbers.
“When you have this big pool of workers who have dropped out or never entered (the workforce) . . . they’re just not being counted,” she said. “It’s just not capturing those folks, and the unemployment rate is showing all this improvement. . . . The vast majority of improvement we’ve seen is due to this growing pool of ‘missing workers.’ ”