Is U.S. Employment Really Surging?

Is U.S. Employment Really Surging?
By Adam Hayes, CFA | November 09, 2015 AAA |
Last Friday, the U.S. Bureau of Labor Statistics (BLS) released the October unemployment data that showed the headline unemployment figure dropping to 5%, better than the expected 5.1%. Great news for the economy, however the headline employment figure can be a little misleading.
The Headline Figure
When the BLS reports unemployment data, they report the so-called headline unemployment figure, or U3 unemployment. The definition of an unemployed person for the official U3 figure counts people who are without jobs and who have actively looked for work within the past four week period. In other words, somebody who is unemployed but has given up looking for work is not counted.
The U4 unemployment figure includes discouraged workers who have stopped looking for work, but it still does not count somebody who is a "marginally attached" worker, who, while not being discouraged, are those who are willing to work but are not looking. The U5 unemployment measure includes that category, but still fails – crucially – to measure people who have taken on part-time or temporary work in order to make ends meet but who are at the same time actively looking for permanent work. For that you need to look at the U6 unemployment measure which looks at all of these cases.
The U6 Unemployment Picture and Labor Participation
The headline U3 unemployment figure is 5.0%, however, when accounting for discouraged workers, marginally attached, and part-time workers who would really like full-time work, the number jumps to nearly 10% (9.8% seasonally adjusted). This is closer to the "real" unemployment picture in America today.
Another important employment metric to consider is the Labor Force Participation Rate, which is currently at 62.4%, a level not seen since 1977 (see the graph below). This metric describes the ratio of those people employed or actively looking for work, compared to the entire population's eligible workers. In other words, a 100% participation rate would mean that everybody who could work in a country is working (whether they want to or not). As people stop looking for work and become discouraged, they drop out of the workforce, but still remain able-bodied. A 62.4% participation rate means that 37.6% of the eligible adults in the United States are not working. In other words, 37.6% of the population is not employed (note, I didn't say unemployed).
The Bottom Line
While the employment picture in America has certainly been improving, especially since the Great Recession, it is important to keep in mind that the headline number of 5.0% is not the whole story. When accounting for the U6 number and the labor participation rate, the employment picture does not look nearly as rosy.
Read more: Is U.S. Employment Really Surging? http://www.investopedia.com/articles/investing/110915/us-employment-really-surging.asp#ixzz3rCKZFFS2
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