{"id":20558,"date":"2011-04-07T23:55:39","date_gmt":"2011-04-08T03:55:39","guid":{"rendered":"http:\/\/countingpips.com\/fx\/?p=20558"},"modified":"2011-04-07T23:55:39","modified_gmt":"2011-04-08T03:55:39","slug":"8-8-is-not-the-real-unemployment-rate","status":"publish","type":"post","link":"https:\/\/www.investmacro.com\/fx\/2011\/04\/07\/8-8-is-not-the-real-unemployment-rate\/","title":{"rendered":"8.8% Is NOT the Real Unemployment Rate"},"content":{"rendered":"

By Jared Levy, Editor, Smart Investing Daily, taipanpublishinggroup.com<\/strong><\/span><\/a><\/p>\n

Headlines declare that the unemployment rate dropped again this past month. There were many experts who thought we would see a rise in unemployment. So perhaps the “seemingly” positive data was a main driver of the recent stock market rally in the face of not-so-strong economic data here in the States, the catastrophe in Japan and revolution in the Middle East<\/a>.<\/p>\n

It is true (I think?) that 216,000 jobs were added last month and that number does seem to be growing each month, but when I hear quotes of 8.8% as our national unemployment rate, I just cringe!<\/p>\n

It pains me to see people get misled day in and day out. I know that in my own life I wish everyone I met would tell me the raw truth. But we all know that the truth is often polished, augmented, twisted or thrown away altogether.<\/p>\n

Being cordial is one thing, but when masses of people are “taught” to believe a partial truth that has direct ramifications on their monetary and social well-being, a line must be drawn.<\/p>\n

A “Peculiar” Figure<\/h3>\n

The percentage number we are told is the official unemployment rate<\/a> is called the “U3” measurement, which doesn’t calculate the full unemployment picture. It actually measures the amount of unemployed workers divided by the people in the participating labor force.<\/p>\n

The devil is in the details in how they define “unemployed workers” and the participating labor force itself. I’ll show you how this can present a serious statistical conundrum in just a moment.<\/p>\n

There are several measurements that the BLS (Bureau of Labor Statistics) offers us, as noted in the chart below. As a total figure, U3 is the most limited in scope and is about half of the U6 measure at present. The U6 at least gives a slightly more accurate reading.<\/p>\n

\"Bureau
\nView larger chart<\/a><\/p>\n

To be fair, figuring out exactly how many people are truly and fully employed is a daunting task. The BLS releases a massive amount of data on a monthly, quarterly and annual basis. I understand that the immense amount of data can be a challenge to sift through, but it is more about the way the data is presented and interpreted by the media that bothers me.<\/p>\n

The data is flawed in my opinion because there are several components and measurements that go into the formula. Furthermore, part of the equation is a bit nebulous.<\/p>\n

The “Participation Rate”<\/h3>\n

This is a highly misleading part of the unemployment equation. The participation rate is the ratio between the amount of people who are currently employed or who are ACTIVELY looking for a job as a percentage of the total people who are able to work (labor force). Talk about a subjective definition!<\/p>\n

Right now the participation rate is at a 25-year low of 64.2%. Here is what that means:<\/em><\/p>\n