Tomorrow is NFP day, and I am expecting a doozy of a number: a loss of 250-300k jobs, and the Unemployment rate ticking up towards 6.5%.

But even that number does not accurately portray the amount of employment damage that has been done the past few years. Indeed, one of the ways we correctly anticipated the economic falloff was by analyzing the weak employment data beneath the headlines over the past few years.

Does that relatively mild U3 unemployment rate accurately portray the employment circumstances? U3 is the official UE rate, but the BLS also reports a full — and much uglier measure — U6. I’ve long said that the U6 number is more accurate, and more and more people are recognizing that as the case.

Dan Gross of Slate and Newsweek has been in the same camp for quite a while. A column of his from October is worth resurrecting prior to tomorrow’s Employment Situation Release. NFP. Dan observes:

“It’s hard to overstate the poor numbers coming out of Wall Street in recent months. But could it be that we’re overstating the gravity of the situation? As job losses have mounted and consumer confidence has plunged, policymakers, news organizations, econo-pundits, and even some of my Slate colleagues have noted that the unemployment rate, which rose to 6.1 percent in September, seems to be at a nonrecessionary, noncatastrophic, low level. The unemployment rate is still below where it was in 2003; and between September 1982 and May 1983, the last very deep recession, it topped 10 percent.

But maybe the employment data are much worse than they seem. In the past year, the two key measures of employment—the unemployment rate and the payroll jobs figure—have been poor but not awful. The unemployment rate has risen from 4.5 percent a year ago to 6.1 percent. And in the first nine months, 760,000 payroll jobs were lost. This is unwelcome but not catastrophic. So why do things feel so bad? It’s not because, as Phil Gramm suggested, we’re a nation of whiners. And it’s not a matter of columnists and spin doctors shading the numbers to make things look worse.

Rather, these two figures are undermeasuring the weakness in the labor market. By some measures, in fact, the job situation is worse than it has been at any time since 1994.

Exactly.

Wanna know why? Major changes in the BLS methodology since the 1990s since 1994. As Dan writes:

“BLS has been compiling alternative measures of labor underutilization. There are many different varieties of labor underutilization. There are marginally attached workers: “persons who currently are neither working nor looking for work but indicate that they want and are available for a job and have looked for work sometime in the recent past.” There are discouraged workers, a subset of the marginally attached crowd, who have “given a job-market related reason for not looking currently for a job.” There are people who work part-time because they can’t find—or their employer can’t provide—full-time work. There are people who have left the work force entirely. Neither the unemployment rate nor the payroll jobs figure captures the plight of many of these folks.

The alt.jobless rate was waring of trouble long before the U3 headline data did. U6, the broadest measure of unemployment, rose to 11%  in September. That’s the highest level since the data series started in 1994. Dan points out that Its also “significantly higher than it was in the last recession, in 2001. . . The unemployment rate may still be historically low, but the underutilization is historically high.”

What does this mean for tomorrow’s number? Only that the economy has been far worse, for far longer, than most investors may realize.

>

Previously:
A Closer Look at Unemployment (September 2007)

http://www.ritholtz.com/blog/2007/09/a-closer-look-at-unemployment/

Unemployment Reporting: A Modest Proposal (U3 + U6) (June 2008)

http://www.ritholtz.com/blog/2008/06/unemployment-reporting-a-modest-proposal-u3-u6/

Pervasive Pollyannas of Prosperity (July 2008)

http://www.ritholtz.com/blog/2008/07/pervasive-pollyannas-of-prosperity/

>

Source:
The 20-Hour Workweek
The unemployment rate seems low. That’s because it’s not counting all those underemployed workers.
Daniel Gross
Slate, Oct. 22, 2008, at 3:59 PM ET

http://www.slate.com/id/2202879/

Category: Economy, Employment, Markets, Psychology

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

37 Responses to “Undercounting Under-Employment”

  1. r says:

    I don’t want to appear to be a conspiracy zealot, but I have no confidence in any of the gov’t published stats.

    Houses around me rose 400% from 2001 to 2007. Property, stats and local taxes have also risen 10-30% a year.

    Taxes and housing make up 60% of what I earn.

    Yet, the gov’t said inflation was low and in control from 2001 to 2007.

    I don’t if it’s incompetence or blatant fraud. Either way, they’re wrong.

  2. DEFT says:

    It’s not inconceivable to think that the S&P500 earnings in ’09 will be $60 (that’s 2002 actual). At 12x that’s 720, almost 25% lower than now. At 10x, that’s 600.

    Now, who knows the difference between all those actively managed bear funds like GRZZX, BEARX, PSAFX and BRPIX

  3. With the election out of the way and Bush’s term coming to an end, what are the chances of the BLS not being pressed to manufacture better-than-justified NFP numbers? Expect a shocker.

    http://www.investmentpostcards.com

  4. “I don’t want to appear to be a conspiracy zealot”…”I don’t if it’s incompetence…”

    that’s ok, you Can sound like one of ‘Cained-Peep, beaten senseless by media mechinations..
    http://www.thefreedictionary.com/machination
    ~~
    of course, BR, U-6, is way more telling of what is up. that MSM continues to bleat on, ‘reporting’ U-3, should, only, provide more Reason to dismiss, beyond Sociological curiosity, much of what they choose to timestamp for the general (sq)weal..

  5. dead hobo says:

    I’m still a little unconvinced about this unemployment situation being the problem all claim it is. Yes, Wall Street and the Mortgage industry are in a bad funk. Given the bubble that just popped, a lot of these jobs are trim off the top. By that I mean, had there been no credit bubble, a lot of these jobs would have never existed in the first place. And given a lot of those losing their jobs work in close proximity to those in the media and those who set opinion, I wonder if a little hype might be institutionalized in the despair.

    With a little luck, those who otherwise have useful skills will transition into useful work, as opposed to paper passing and financial product sales. The rest will settle in to whatever they can do or go back to school and learn something a productive society values.

    Real jobs exist, but they require training and pay normal wages. Not empty suit, borrow cash from Uncle Sam, and pay if make or lose money Wall Street commissions.

    Re the BLS numbers. Yeah, they’re probably crap. But they appear to be consistent crap so they can be worked with.

  6. Pat G. says:

    If anyone is blogging here that needs a job or knows someone who does the Census has begun hiring for the 2010 campaign. Granted, the longest you could expect to work would be about 18 months but the pay is north of $12 an hour. More information is available at the Census website.

  7. Mannwich says:

    @dead hobo: “Real jobs exist” for sure, but the vast majority of those who are unemployed (and still considered highly skilled at something) are not considered “qualified” for most of those jobs for which other very specific skills and experience are required. I can tell you from direct experience that most companies today will NOT hire (or even considere) most people who do not have this specific experience because of the ramp up time (and money) it takes for them to get up to speed in that new job/industry.

    There are definitely jobs out there that employers cannot (or will not) fill but many will not hire those who are literally not doing some variation of that job in that industry, in other words, many skills are not accepted as “transferable” to other jobs/industries.

  8. Concerned American says:

    This is the root of our problems. The unemployment and even the under employment this administration has fostered is nearly criminal.

    I have been in IT for 30 years. Either your job has been offshored or it will be soon in this field. The raises, benefits, and pensions have left us. People on commissions have been cut back significantly in the last 24 months. I can send many links to President Bush encouraging this behavior.

    So little to no manufacturing in automobiles and IT in the US anymore. Less and less development, research, and engineering in the US anymore.

    Dead Hobo you say there are “real” jobs. Where? What career can you get into other than lawyer or doctor that has a great future with work and career growth?

    The job engine is dead. Not sputtering, but dead. which means we have to import nearly everything. Where does and will the money come from to continue to buy these imports?

    These people in auto and IT bought houses, cars, sandwiches, etc. Who is going to buy those things now?

    The job engine and this country need a kick start and soon. This is about to get a lot worst very quickly.

    Leaders in nearly every company are being compensated on how many jobs they can move out of the US. This must turn around soon. Give any US company money or loan them money and the last priority will be putting an American to work with great pay and benefits.

  9. Bob says:

    Well, speaking from firsthand experience, unemployment is rising. :) I just joined the lines of the unemployed, as my employer reduced the workforce by about 15%, leaving 40 people without jobs.

  10. though, with this: “Only that the economy has been far worse, for far longer, than most investors may realize.”–BR

    we may get a chance to see that ~7900-level of 10 Oct, again, on 07 Nov.

  11. Montaigne says:

    Bob,

    I’m with you. We’re a small biz w/ a little over a $1 mil. in gross receipts and for the last month we’re all on half pay. I don’t see any sign of it letting up.

    In my conversations with friends, business owners, employees, etc. business is way down for almost everyone and many are praying they can either hold on to their business or not get let go. Things are going to get a lot worse.

  12. dead hobo says:

    Mannwich,

    You made my point. Out of work house builders can set up a handyman business or transfer to something similar pretty easily. Teachers can sell or teach something else. Accountants and engineers can pivot easily, providing there is no age discrimination in play. Wall street empty suits and mortgage application takers aren’t good for much so I expect to see a few on my street corner bumming for a hit off my bottle (screw ‘em).

    Around Y2K, anyone who could fluently string together a business oriented sentence could pass themselves off as a Systems Analyst or a Project Manager and get $100 an hour, sometimes a lot more if they worked for a blue ribbon firm. They and their ilk appeared to transition to credit bubble oriented work as the computer boom passed. Now it appears the easy money is gone unless you can read a stock market bottom and have some spare change to put into the market.

    The world’s not fair. Bad things happen to good people. Lots of people are sons of bitches. But most junior colleges cost next to nothing and useful skills are available to to learn.

  13. Bruce N Tennessee says:

    Things look bleak all over..I notice Toyota is taking a 20% haircut on last night’s news..

    My question would be: Why would anyone not expect severe deterioration in the unemployment picture? If all the world’s economies are undergoing contraction at the same time, even a worker who is alert, anxious to retrain if need be, aggressive….where does he think he should focus? Point is….if the worldwide picture is this cloudy and he is newly laid off…even assuming he wants to..there doesn’t seem to be an industry with a bright future right here.

    Oil and gas? Investments? Building? Autos? Sales? Real Estate? etc…when you run down the list of professions, including worldwide needs…it seems to come up pretty empty…

  14. Montaigne says:

    Infrastructure and green technology. It’s New Deal 2.0.

  15. Mannwich says:

    I hear you, dead hobo, but it’s always easy for other people to be so sanguine about job loss when it’s not their job and way of life that’s lost. I left Corporate America (I loathe that culture in most of those places) myself to start my own small business and although it’s done fairly well for a couple of years, business is dead right now. I think I’ll be fine and will just try something different if that doesn’t work out, but we don’t have kids and live very frugally, so I’m not that worried about being able to make it. I’m also worried about health insurance (which I get through my wife’s job/company) because I have a chronic health issue through no fault of my own.

    I realize that life’s not fair. I’m just saying I don’t think other people (Dennis Kneale comes to mind) empathize enough with how difficult it is to re-train oneself in a specific industry/profession/trade, likely accept much lower pay, after many years of doing something completely different.

    There will always be a need for teachers and accountants, for sure, but not everyone is cut out for those professions. I just wish people wouldn’t easily dismiss how hard it is for many specifically trained people (techies, engineers, etc.) to all of a sudden pivot to other decent paying jobs especially when they have several issues to deal with (supporting children, health care needs) that you perhaps don’t. That’s all I’m saying.

  16. DL says:

    Mannwich @ 12:08

    “…employers … will not hire those who are literally not doing some variation of that job in that industry, in other words, many skills are not accepted as ‘transferable’ to other jobs/industries”

    Absolutely true, especially in the current environment.

    (I’ve heard that there are plenty of jobs for day traders, however).

  17. Mannwich says:

    @DL: …….and I can personally attest (I am in the recruiting/staffing business) that many employers now won’t even hire those people who ARE doing those very jobs in the same industry right now. It’s literally that bad, at least on Wall Street it is…..

    and it’s going to get much, much worse on Main Street in ’09. Bank on it.

  18. “Infrastructure and green technology. It’s New Deal 2.0.”

    especially, conservation retrofits that pay for themselves, you’d be surprised by some of the pay-backs available from simple Industrial Lighting change-overs..(bottom-up)

    there’s so much waste in our Economy, we could, readily, use it, the savings from previous Waste, to fund much of the Improvement our, current, Infrastructure needs. (that is, assuming, of course, our Current Topline is fully funded, which, again, of course, it isn’t.)

    though, sadly, that ‘New Deal’ won’t be forthcoming without, many, strings attached (as per usual), nor will it be enacted utilizing the best of currently available Technology..(top-down)

  19. dead hobo says:

    Mannwich,

    Yes, I am a little insensitive. The health issue will probable be helped out a little when Obama’s plan, whatever it turns out to be, comes to life. The world will be a sweet place when a hobo with a fondness for Ripple and unfiltered smokes can get an affordable policy.

    Some people have troubles thrust upon them. I think the world tries to be kind, on balance, to them.

    Others screwed themselves over due to how poorly they handle money and how they never even considered the concept. Even some nice people without an ounce of intelligence are in this group. They dug the hole, they jumped in, now they can figure out how to get out.

  20. leftback says:

    and the REAL problem with job losses is that many of these people have mortgages, and that’s why I am short the banks today. SKF… the gift that keeps on giving. I expect tomorrow to be horrendous and then we will probably see another weekend Hail Mary.

  21. leftback says:

    and back in the markets, here comes that 900 level. Important test coming up. After this we are talking re-test of 840 and then after that we are in wave 5 of 3, Tabbo-style….. nice work this week, Andy, whatever the result. You have had the directions down pretty well the last few weeeks. Have to say that the people who post on TBP (and Barry) have made and saved me a lot of money this year. Thanks to all.

  22. DL says:

    leftback @ 1:44

    “I expect tomorrow to be horrendous …”

    Given the sell off (S&P @ 904 right now), and all the fear and loathing over the jobs number, I wouldn’t be surprised to see a bounce in the market tomorrow.

    They’ll say that “it wasn’t as bad as expected”.

  23. leftback says:

    @ DL: All things are possible. I am wondering whether we get a bounce here, and then more added horrendousness tomorrow if the number is even worse than expected. Agree that 900 level is crucial now.

  24. Winston Munn says:

    The virtues of debt and free trade.

    Doesn’t it seem downright fanciful to believe that the U.S. could be altered from a high-paying manufacturing-based economy to a low-paying service-based economy, saddle that economy and its workers with twice the debtload, and expect improved livelihoods for all?

    But that is the story, sold by both parties, from Clinton to Bush.

    And weren’t We the People naive enough to support the fantasy with our votes, nodding our heads sagely when the pundits were decrying the evils of workers’ unions while expounding on the virtues of free trade, and while buying cheap products on credit cards was being extolled as the New American Way? After all, we deserve it because we are Exceptional – We are Americans.

    But when you really think about it, doesn’t this concept that imaginary economic growth fueled by buy now, pay later underpaind workers could be sustainable smack a little of the magical thinking that encourages belief in the tooth fairy, Santa, and a 5000-year -old Earth that had man and dinosaurs coexisting?

    Well, seems now we have a worldwide wakeup call. Time to grow up and stop believing in fantasy. The truth is we made a bad trade – Debt eventually has to be paid, and free has cost us a lot.

    Silly us. How did we think that spending beyond our means while creating paper profits could somehow make us rich when history has proven that nations that do not save or create real goods have no real wealth?

    Well, maybe we are exceptional, after all – exceptionally naive.

  25. dead hobo says:

    leftback,

    See you tomorrow at 850. This baby is going to blow. Duck and cover.

  26. Mannwich says:

    Needless to say, I am NOT in the camp that says “all of the bad news is already baked into the markets”. Not even close. DOW will eventually hit 7,000 (maybe overshooting a bit lower) and SPX 700 or so.

    Sure, we’ll get a few dead cat bounces like we have recently but this sucker’s going much lower. Just don’t know when we’ll feel the full brunt of it.

  27. Winnie,

    watch this: “And weren’t We the People naive enough to support the fantasy with our votes, nodding our heads sagely when the pundits were decrying the evils of workers’ unions while expounding on the virtues of free trade, and while buying cheap products on credit cards was being extolled as the New American Way? After all, we deserve it because we are Exceptional – We are Americans.

    But when you really think about it, doesn’t this concept that imaginary economic growth fueled by buy now, pay later underpaind workers could be sustainable smack a little of the magical thinking that encourages belief in the tooth fairy, Santa, and a 5000-year -old Earth that had man and dinosaurs coexisting?

    Well, seems now we have a worldwide wakeup call. Time to grow up and stop believing in fantasy. The truth is we made a bad trade – Debt eventually has to be paid, and free has cost us a lot.

    Silly us. How did we think that spending beyond our means while creating paper profits could somehow make us rich when history has proven that nations that do not save or create real goods have no real wealth?

    Well, maybe we are exceptional, after all – exceptionally naive.”

    come howling back at us through the MSM Megaphone, after BW II cuts the U$D in half..

  28. I-Man says:

    @ Montaigne:

    “Infrastructure and green technology. It’s New Deal 2.0.”

    Agreed. The gov’ment will spend its way to job creation, and (badly needed) investment into infrastructure and clean tech will be the outlet.

  29. leftback says:

    Second test of 900 after a textbook bounce off support. I am still in my SKF here. Would a successful bounce off an intra-day double bottom be bullish?

    @dead hobo, 850 would not surprise me in the least tomorrow.

  30. Bob A says:

    Ironic isn’t it, that those who scream the loudest and longest about their “entitlements” are the rich folks?

  31. willid3 says:

    i wonder if the numbers were changed to make it all look better for some other reason like social security? and we have been saying for a long time that wages weren’t acting normal. they should have gone up based on what we were told about unemployment. But they didn’t.

  32. Mythiot says:

    The first unemployment insurance data for November came out today. Comparing the advance Not Seasonally Adjusted (NSA) estimate of 463,932 initial claims for November 1 to the average of the weekly intial claims data in November 2007, we see that initial claims are up 39.7% year-over-year (YoY) in November. Note that the YoY rate of change (RoC) peaked in September at 48.8%, declined to 43.6% in October, and then declined further in November.

    I’m looking at a plot of the trailing three-month (T3M) YoY RoC in NSA initial claims, and the resemblance to both the 1991 and 2001 recessions is clear. In 2001, the T3M YoY RoC of initial claims peaked at 45.0%, and it’s now at 43.6% and turning the corner. There could be some wiggles, but we can expect that the YoY RoC of initial claims will continue slowing down from here.

    Nonfarm payrolls (NFP) usually lag initial claims by several months, so the YoY RoC of NFP, which is still accelerating, should peak in, say, three to six months. That is, the employment situation will get worse in the near term, but we can see, more or less, how it’s going to play out. If you wait for the robins…!

  33. From what I can tell in IT… Employers want wage slaves with between 3-5 years of XP, or folks willing to work for those wages. Folks with more XP either have to go into management or specialized consulting, folks with less are crowded out. NYC was particularly bad, lots of interviews I had were for MLM internet scams or “stupid” large IT orgs (which pay lots of money for garbage software and poor support).. I can’t imagine it’s gotten much better since I left in 2006, and most folks I know have fled NYC for just about anywhere else (London, LA, SF, Seattle, Vancouver, Austin TX).

    At this point I’m just banking as much as I can in case I get forced into “consulting” again… Nothing I love more than nagging clients over receivables…

  34. stillarealreaganrepublican says:

    Barry, let me ask you a question. When was the last time you saw Elaine Chao on CNBC defending the administration’s employment numbers? She must be in the same undisclosed location as Dick Cheney was before, oh I don’t know, 3 days before the election when he showed up in his home state to endorse McCain. Where in the hell has she been?? If there is one soul left in this country who actually believes ANY stat the government puts out to defend Bush’s statements before the REAL crisis began, let them show up on CNBC, MSNBC, CBS, NBC, FOX or anywhere and defend it. If President Bush can say in March and May and July and September “Our fundamental economy is strong” and get away with it, then surely the BLS can say that the unemployment stats really aren’t that bad, right? Look, I believe a president should be optimistic, but also truthful. When Reagan said “We are a shining city on a hill”, I believed it. But when Bush said everything was fine, I cringed. Why? Because I knew the truth, just like you did. If the truth ever REALLY gets out about what has been going on the last two years, I think President Bush will be seen as the puppet he really was……….Someone was pulling his strings, just like someone has been pullling Obama’s since his campaign began. But at least Obama can really claim that this wasn’t his fault and he truly has a mandate, just like Reagan did to get us out of the Carter malaise…….

  35. Jojo99 says:

    One point related to unemployment not mentioned here so far is ageism in the IT world. If you are +45 or worse, in your 50′s, the probability of getting new employment has always been difficult. Now it is near impossible. And as has bene mentioned, most job listings I’ve seen HAVE been very specific, requiring experience in the same field, often with specific competitors named. Years of skills in related areas are not generally considered transferable these days.

    See here for a layoff tracker:
    Techcrunch layoff tracker

  36. Greg0658 says:

    Winston that was awesome.

    Catching up this morning. I took the 2010 Census Enumerator test yesterday, Management last week.
    FYIs
    Enumerator – 28 questions in 30 minutes
    Management – 29 questions in 60 minutes
    Both tests for this 50yo were something, especially the management test. Mind bending questions. What a crew can come up with in a 365 day a year socialist job. Not a slam. I appreciate good government. Its nothing more than a dig at this whole system of Caiptalism / Socialism / Utopianism.
    GPS address sync in my area begins in Feb09. The questions to be asked are passing thru Congress now. The actual Census will be in 2010. Initially I went to investigate. Our area is having trouble with applicants showing up to test. I am wondering if “the nanny state is too good” or criminal records or transportation requirements are the problem.
    http://www.census.gov

    Back to this thread.

    I was screeming at the CNBC segment a day or 2 ago. It just reported that Chineese will work for $170 a month in US dollars.
    (sometimes I think I should have a security camera running just to upload that stuff to YouTube)
    Do you people on Wall Street and Washington GET THAT. Your trickle down policy has trickled out into foreign lands. Years of our savings are invested overseas now. It is going to 25 YEARS for those lands to arrive at an American Standard of Living and BALANCE TO OUR ECONOMY.