Reindexing The Unemployment Rate By America's Population Growth Yields Some Ugly ResultsSubmitted by Tyler Durden on 05/17/2010 02:19 +0300
One of the more peculiar phenomena in the current Great Recession has been the persistent drop in the Civilian Labor Force Participation Rate, after averaging around 66.5% for the past 20 years, in the past 18 months it has plunged, and despite a marginal improvement over the past several months, is still at 65.2%. This is counterintuitive when one analyzes the data side by side with the overall civilian population in the United States. An indexed chart, using the January 2000 level as a baseline demonstrates that while the US population has been climbing at a fairly steady arithmetic growth rate, the civilian labor force, which should track the changes in the actual population, has been behaving in an erratic pattern, having more to do with BLS data interpretation and the nuances of the business cycle than demographics. Which is why when reindexing data for nominal changes in the US rate of population growth, yields some troubling variations from the just disclosed 9.9% unemployment rate. Basing the adjustment to the unemployment rate on nothing but a statistical regression to the growth of America over the past ten years, would yield an unemployment rate of 12.7%. More troubling is that the underemployment rate would be a number far higher than the 17.1% disclosed for April. According to our calculations, a reading closer to 22% would be more appropriate to represent the level of real joblessness in the US. A number, which is higher than the corresponding metric in austerity-ridden Spain.
First, we demonstrate the labor force participation rate. The most recent disclosed reading of 65.2% is materially different from the 20 year average of 66.4%.
Of course, the US population isn't static. It grows constantly, and according to the BLS, the Civilian Noninstitutional Population has increased from 211.4 million in January 2000, to 237.3 million in April 2010. This is a 12.3% change, which is nearly 50% compared to the change in the Civilian Labor Force, which has increased from 142.2 million to 154.7 million, or an 8.7% change.
Showing this graphically yields the following chart: an indexed comparison of these two very interlinked series demonstrates that while the civilian population has grown in a pretty much straight line, the same can not be said for the Civilian Labor force. Of course, for the US economy to be able to sustain the influx in the population without forming any surplus aberrations, these two lines have to be matched as close together as possible. To be sure, one can make the argument that as society has gotten more efficient, the need for the labor force has declined. The problem with that is that there is an increasingly larger buffer of perpetually unemployed people who will be a drag on the social safety net of America, where there is no free lunch, even in the massive field of government spending. Alternatively, many of these people work in the shadow economy where they pay exactly zero taxes.
Using the above data, and knowing the indexed differential between where the labor force probably is based on the growth of the US population, and what the BLS would like us to believe the Labor Force Participation rate is (as low as possible to keep the actual unemployment number as low as possible as well), we can determine that the real unemployment rate, using an expanded Labor Force, and thus a larger pool of unemployed people, yields an unemployment rate (U-3) of 12.7%. This is about 28.6% larger than the officially reported 9.9%.
And where the discrepancy gets really scary, is when the U-6 underemployment or "real" unemployment rate is comparably reindexed. Instead of the reported 17.1%, we obtain a number that would put even double-dip Spain to shame. Real "real" unemployment is 22% of the civilian labor force, or a whopping 34 million people who are "unemployed, marginally attached, plus total employed part time for economic reasons." This excludes the roughly 80 million people who are not part of the labor force to begin with.
One last parting thought, or as the case may be, chart, is the distribution by weekly duration of unemployment buckets within the unemployed universe. As the chart below shows, out of the 15.3 million unemployed (U-3 definition), the average duration of unemployment has shot up to 33 weeks. The number of people who are unemployed for 27 weeks or more has hit a stunning 45.9%. At this rate, more than half of the unemployed pool will have been out of a job for more than half a year in a month or two. The skills that these workers lose due to inactivity is massive, and represents a tremendous hit to total US productivity. And, unfortunately, as the chart below shows, there are no signs that any moderation for the ever-increasing length of average unemployment is anywhere in sight.
The reason why unemployment is and will be the scourge of the propaganda machine, is that while banks may provide mortgages to individuals with below average incomes and other potential black marks, this time around, having a job will be necessary. If we are right, and if indeed almost 30-some million people have at best recourse to the occasional temp worker paycheck, this will wreak havoc with the first derivative for the US "tail wags dog" economy where housing, and untenable and enslaving housing debt more specifically, is the critical support pillar of the ponzi scheme. Without an improvement in unemployment metrics, there can be no general economic, or sustainable market, improvement, period.