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Unemployment Reporting: A Modest Proposal (U3 + U6)
Posted By Barry Ritholtz On June 12, 2008 @ 6:30 am In Data Analysis,Employment,Taxes and Policy | Comments Disabled
Earlier this week, I received an email from the Real Estate editor of an (unnamed) publication. They wrote:
“Just wanted to point out something I read in a Wall St. Journal article that made me think of you immediately. (Home Gauge Climbs Amid Bargains )
“April pending home sales—meaning signed sales contracts—rose 6.3% from March to a level of 88.2, the highest in six months, the National Association of Realtors said. A reading of 100 is equal to the average level of sales activity in 2001. Pending sales typically lead actual sales by a month or two, but may overstate strength because of sales cancellations. Existing-home sales data for May will be released June 26.”
There’s no question in my mind, that the part in bold above was inserted as a result of your persistent efforts to point out how skewed sales data reports are. At the very least, I believe your repeated exhortations on the matter have contributed to more accurate reporting of home sales data on a national level.”
Thank you, JW. Your kind words helped crystallize some of my thoughts on a related “misreportage” — the way the US FinPress reports the Unemployment Rate.
U3 is the “official unemployment rate” according to the BLS website. Due to this, it is the current measure of Unemployment that gets focused upon by most media, and therefore the public. It has, over the years, slowly excluded many of the factors that USED to go into how the US reported unemployment. Hence, there has been a gradual decrease in the Unemployment rate that has occurred regardless of what was happening in the Jobs market.
U3 is now comprised in a way that merely repeating it without a slew of caveats borders on fraud.
U6, on the other hand, is the broadest measure of Unemployment: It includes those people counted by U3, plus marginally attached workers (not looking, but want and are available for a job and have looked for work sometime in the recent past), as well as Persons employed part time for economic reasons (they want and are available for full-time work but have had to settle for a part-time schedule).
To be honest, I do not know what the true Unemployment rate actually is; I believe it is considerably higher than U3 (by 100s of basis points), but I suspect it might be lower than U6.
Here is a modest proposal for all of the poor scribes (like me) who slog through the monthly NFP report:
For the sake of more accurately describing the conditions in the labor
market, let’s begin reporting two measures of Unemployment: U3 as well
Its been pretty obvious for sometime that the Financial Media are doing a disservice to their readers by only reporting U3, given how dramatically it understates Unemployment. Indeed, consumer sentiment reports are at deep negative levels that only occur when Unemployment is much than what U3 has been saying. It is painfully obvious that U3 does not paint an accurate view of the Employment situation.
Its way past time to fix that.
Here’s the experiment I propose: Let’s start reporting both, with appropriate descriptions of each. Report U3, add U6, provide monthly and year over year changes. Let the reader see the full picture, via BLS data.
Here is how I would have reported the Unemployment portion of April’s 2008 NFP:
“The number of unemployed persons was little changed in April. U-3, the official unemployment rate as a percent of the civilian labor force, was 4.5%. Itis only modestly elevated from one year earlier, when it was 4.3%.
U-6, the broadest measure of total unemployed*, was also little changed at 8.2%. It is up from 7.9% one year ago.
* U6 includes U3, plus discouraged workers, those working part time who want a full time position, plus marginally attached workers. It is the broadest measure of Unemployment.”
That presents a much more complete and accurate picture of what the employment situation is actually like. This doesn’t require any math, or massaging of the numbers — its just passing along data directly from BLS in a more inclusive and accurate way.
The Bureau of Labor Statistics, to its credit, provides lots more data on inflation,
unemployment, GDP , etc. than ever gets reported in the mass media. Few people seem to want to slog through the numbers
to get at the details of the economic picture — and that’s a shame.
The Financial press can provide a more accurate picture of what’s going on with a slight modification of how they present the BLS releases. Its long overdue.
Let’s take the data and statistics out of the hands of the politicians and spinmeisters. As a nation, we would be better off for it.
Jobless Claims today out at 8:30am today.
Alternative Measures of Labor Underutilization
Table A-12 
BLS introduces new range of alternative unemployment measures 
John E. Bregger , Steven E. Haugen
BLS, October 1995
Measuring Unemployment in the Nineties 
Janet L. Norwood and Judith M. Tanur
The Public Opinion Quarterly, Vol. 58, No. 2 (Summer, 1994
Historic Annual Employment  (Note: footnotes in each year track major changes)
BLS, 1942 to date
HISTORICAL COMPARABILITY Household Data 
Employment and Earnings, February 2006
Article printed from The Big Picture: http://www.ritholtz.com/blog
URL to article: http://www.ritholtz.com/blog/2008/06/unemployment-reporting-a-modest-proposal-u3-u6/
URLs in this post:
 Home Gauge Climbs Amid Bargains: http://online.wsj.com/article/SB121301517514157107.html
 Image: http://www.ritholtz.com/blog/wp-content/uploads/2008/06/alternative_measures_of_labor_under.png
 Table A-12: http://www.bls.gov/news.release/pdf/empsit.pdf
 BLS introduces new range of alternative unemployment measures: http://www.bls.gov/opub/mlr/1995/10/art3full.pdf
 Measuring Unemployment in the Nineties: http://www.jstor.org/pss/2749542
 Historic Annual Employment: http://www.bls.gov/cps/cpsaat1.pdf
 HISTORICAL COMPARABILITY Household Data: http://www.bls.gov/cps/eetech_methods.pdf
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