You may have heard the dismal unemployment figures released last week. 533,000 jobs were lost. Over 1/2 a million new families last month now need to figure out how to put food on the table, pay their mortgages, car loans, credit card bills, etc... But what you may not realize, it that it's really much worse than that.
Last year, there was a great deal of criticism for the way the government calculates inflation. At a time when gas was nearing $150 per barrel and food prices were up by double-digit percentages, the official gauge of inflation was still saying 3% inflation. That's because they don't count food and energy when they calculate inflation, supposedly because those are too "volatile". The real reason is because a great deal of government payments are tied to the inflation rate, so higher inflation means more money flowing out to retirees, disabled, etc... rather than to banksters and the wealthy elite, where we apparently want the government money to go.
Unemployment reporting works much the same way. When you hear "unemployment" reported in the news, what you are hearing is the "U3" number. "U" for unemployment, "3" for the third of six ways to measure unemployment. Here are the ones that come next:
- U4: U3 + "discouraged workers", or those who have stopped looking for work because current economic conditions make them believe that no work is available for them.
- U5: U4 + other "marginally attached workers", or those who "would like" and are able to work, but have not looked for work recently.
- U6: U5 + Part time workers who want to work full time, but can not due to economic reasons.
An alternative gauge of unemployment -- which includes discouraged workers and those whose hours have been cut back to part-time -- rose to 12.5% from 11.8%. The number of workers forced to work part-time rose by 621,000 to 7.3 million.See why the government prefers the U3? It's much easier to report that the unemployment rate is 6.7% than it is to admit that the real number is about 12.5%. Just for fun, let's hear from some economists on last week's unemployment report:
- The September-though-November period saw an average 419,000 average monthly job losses, as the recession deepened. More timely unemployment insurance claims data suggest no let up in the current pace of job losses. While the unemployment rate rose only 0.2 percentage point to 6.7% in today’s report, the labor force shrank by 422,000 in November and 237,000 over the September-November period. While this suggests a discouraged worker effect, the severe worsening in labor markets has been relatively recent, with employment declines in January-August deviating little from the -82,000 per month average. There is little doubt that labor slack is rising rapidly, and the unemployment rate will jump in the months ahead. –Steven Wieting, Citigroup
- The November decline stands as the largest single month drop since December 1974, when employment plummeted by 602,000. With the latest revisions averaging nearly 100,000 per month, the November job loss could easily end up being the new post-World War II benchmark for severe job declines. The current job losses however are a much smaller share of total employment. For instance, the 535,000 decline represents a 0.39% drop in employment from October while the December 1974 drop was 0.77%. Nonetheless, the scale and speed of job losses over the last three months remains the worst since the 1973-75 recession. –David Resler, Nomura Securities
- The bottom drops out of the labor market… History tells that once the labor market weakens as much as it has in the past several months, job-shedding takes on a life of its own and tends to persist for a long while. We expect labor market conditions to be dreadful for many months to come and consequently for consumer spending to continue to decline. The U.S. consumer, which for so many years was the global engine of growth, will remain a significant drag on economic activity in coming quarters. –Joshua Shapiro, MFR Inc.
- These are god-awful numbers. The economy is headed downhill and the brakes are not working. There are so many layoff announcements that it is hard to keep track of. Some businesses are cutting jobs in anticipation of tougher times. This is especially true for retail, manufacturing and finance, which accounts for the bulk of jobs in the country. They want to trim fats and stay lean and mean for the tough times ahead. Also, business spending will be a drag on the economy in the foreseeable future. –Sung Won Sohn, Smith School of Business and Economics
- A shockingly weak report that suggests the fourth quarter could see a drop in real GDP of 5% or more at an annual rate. The large downward revisions to employment in September and October suggest that the economy was even weaker than we thought when the credit crunch intensified (indeed the employment report for September, which now shows a larger than 400,000 decline in jobs, was surveyed in the week before Lehman Brothers failed).,, These data will spur the calls for a massive stimulus plan, increase the chances of a rescue package for the domestic auto industry. –RDQ Economics
- Jobs plummeted again in November with deep and widespread job losses. Much of this collapse in jobs was due to the collateral effects of the credit crunch which is only slowly being repaired. So far this year, 1.91k jobs have been lost with half of those jobs being lost in the past 3 months as the downward spiral has accelerated. The recession is intensifying and the economy is rapidly shrinking. –Stephen A. Wood, Insight Economics
- This was much worse than was expected and represents wholesale capitulation. The threat of a widespread depression is now real and present. –Peter Morici, University of Maryland